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"Not everything that can be counted counts, and not everything that counts can be counted"- Albert Einstein
1.1 Background Information
In recent years, especially due to the impact the financial crisis had on business confidence, significant effort has been made to improve the effectiveness of the audit profession in light of its increasing importance to the stability of markets. Moreover, the quality of the audits of Public Interest Entities (PIEs) is critical to the general public, who have a direct or indirect stake in the performance of such entities. Since users of financial statements rely on the auditor's opinion on the financial statements to support their investment decisions, the audit profession is continuously finding ways to improve the quality of the audit.
In addition, the dominant advances in Information Technology (IT) of the twentieth century have changed the way many organizations conduct their business. Nowadays, Information Systems (IS) are at the heart of the business process of many organisations. As an increased number of business organisations engage in electronic commerce and as much of the traditional audit trail disappears, it becomes critical for auditors to understand the fundamentals of doing business electronically and develop new audit techniques for such environment. Undoubtedly, the application of Information Technology in carrying-out audit processes will be indispensable, now and in the foreseeable future.
As many foreign authors have identified in recent years, the way the audit is conducted is evolving due to the ascending relationship between accountancy and information systems. The advent of computers has not only brought with it threats to the audit profession, but it has also brought the prospect of improving the audit process itself, thus pushing audit firms in the search for higher efficiency and effectiveness (Zammit, 1999).
Given the ever increasing potential of Information Technology and public expectation for increasing efficiency and effectiveness of the audit process, the auditing profession has been, and still is, faced with the need to provide increased guidance and efficiency of audits conducted in an IT environment. The overall objectives and scope of an audit remain the same whether an audit is carried out in a Computer Information System (CIS) environment or not. On the other hand, the application of auditing procedures may require the auditor to consider the use of Computer Assisted Audit Tools and Techniques (CAATTs). Such techniques use the computer to enhance the effectiveness and efficiency of audit procedures. In a 'Guidance note on Computer Assisted Audit Techniques' issues by the Chartered Accountant on January 2004, CAATTs are defined as computer tools and techniques that auditors (external or internal) use as part of their audit procedures to process audit data that is held within in an entity's information system .
1.2 Need for such a study
This study analyses the applicability and use of Computer-Assisted Audit Techniques (CAATs) from the perspective of the Big Audit firms.
Computer Assisted Audit Tools & Techniques, as their name suggests, include both 'Tools' and 'Techniques'. Although they are much related, the acronyms CAATTs and CAATs are used interchangeably by various authors. An important distinction needs to be made between the two as the former refers to both the tools and techniques, while the latter refers to either tools or techniques. For the purpose of this study the acronym CAATs will refer to Computer-Assisted Audit Techniques.
Earlier foreign CAATs research has been generally descriptive in nature. In addition, recent Maltese studies were carried-out with the objective to identify which audit software is commonly used by the audit firms, and the cost & benefits attached to the use of such audit software (Audit Software is an example of a Computer-Assisted Audit Tools). These studies were principally focused on the Computer-Assisted Audit Tools side, but no extensive research was made on the Computer-Assisted Audit Techniques used in the audit process such as Test Data, Integrated Test Facility (ITF), and Parallel Simulation; which may be used in performing various auditing procedures such as tests of details, analytical procedures, and tests of controls.
1.3 Research Objectives
Since no previous studies were carried out on this area, this study's overall objective is to give a practical illustration of how CAATs are used by the Big Four firms and to assess the benefits derived from the use of such techniques. The study, amongst other findings, will focus on:
Assessing the determinant factors for effective application of CAATs in the audit process
Analysing which CAATs are commonly used by the Big Four Audit firms and the applicability of such techniques
Analysing the benefits reaped by the Big Four Audit Firms when using CAATs as part of the audit process
Assessing whether the use of CAATs is expected to increase in the foreseeable future as a way of continuously increasing effectiveness and efficiency of Maltese audits
Scope and Limitations
Bridges between techniques
The research for this study will be qualitative in nature as the aim of this study is to give an insight of the applicability of CAATs and how these techniques can help the Big Audit Firms increase the efficiency and effectiveness of the audit and thus meeting with the public's expectations.
In the process of gathering the empirical data, detailed interviews will be carried out with representatives from the Big Audit Firms. The interviewees would have IT knowledge and sufficient experience in the use of CAATs so as to get a view of how CAATs can aid the auditors at the different levels and stages of the audit process.