The impact of information technology on Organisations’ audit processes Dickson T. C. Soko (2012) Msc.

Business Information Systems [email protected] com The impact of information technology on Organisations’ audit processes, 2012 Page | 0 Table of Contents 1. 0 ABSTRACT...

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.... 2 2. 0 INTRODUCTION .

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2 3. Roles of auditors ...

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0 Changing Roles of the auditors ......

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..... 2 5. 0 Benefits of IT in Auditing............................................................................................................... 3 6. 0 Challenges to Adoption of ICT in Auditing ................................................................................. 4 6. 1. Cost ...................................................................................................................................... 4 6. 2. 0 Poor Information Technology infrastructure ................................................................... 4 6. 3. 0 ICT literacy level ................................................................................................................. 5 6. 4. 0 Lack of financing option..................................................................................................... 5 7. 0 How to Promote Use of Information Technology in Auditing Profession .............................. 8. 0 Conclusion ...................................................................................................................................... 6 The impact of information technology on Organisations’ audit processes, 2012 Page | 1 1. 0 ABSTRACT Computers and Electronic business have been embraced by many entrepreneurs, administrators, investors, and organisation observers lately. So many organizations nowadays integrate Internet information technologies to redesign their business processes in ways that strengthens their competitive advantages in the business environment (Phan, 2002).It is believed that companies that do not use IT in conducting their business activities are less competitive in the business environment. This being the case, auditing processes in an organisation should also take pace with technological development to make sure that transparency and accountability remains intact. This report tries to articulate issues to do with how information technologies have shaped the way audit profession does operate its business activities to conform to changing nature of organisational activities as a result of the growth of information technologies. . 0 INTRODUCTION Auditing is one of the activities that are carried out in an organisation be it private of public for the purposes of providing the organisations with independent assurance that internal controls are in place and functioning effectively (David, Schiller and Wheeller, 2007). Auditing provides a mechanism whereby issues that affect or might affect the organisation are brought to right and therefore receive required attention and resources needed to fix them( (David, Schiller and Wheeller, 2007).The use of computers and networks as auditing tools therefore are of great significance as they brings efficiency in the auditing process and also provides improved transparency and governance of the organization. This report has been divided into the following categories: roles of auditors and the way their roles are changing, benefits of IT in auditing challenges in adopting Information Technologies in auditing, and ways to promote auditing. 3. 0 Roles of auditors Auditors have got a lot to play in as far as organisation management processes are concerned.An organisation without auditing function will always suffer more harm than good. Auditors are the ones who offer checks and balance services in an organisation. They are also responsible for making sure that the environment in which the organisation operates is controlled. Without auditors, it could be very difficult to assess risks that can negatively impact an organisation’s daily operations. Not only that, auditors are there to analyse organisation information, communicate, monitor progress and also offer control measures where necessary so that organisation move in line with the goals (Pathak, 2005). 4. Changing Roles of the auditors The impact of information technology on Organisations’ audit processes, 2012 Page | 2 Due to the development of information technologies, definition of internal audit has drastically changed and continues to be revised. At present, the function of internal audit includes not only of internal control, checking effectiveness, fraud investigations or assistance to external auditors, but also identification of organizational risks, consultations to the senior management with regard to risk management, process improvement or global operations most of which are done electronically.The use of Information Technologies can lead to realising so many benefits in trying to make auditing process meaningful in an organisation and cope with the changing nature in the way organisations operate today organisations. These days auditing tools are growing more powerful and more complicated. In spite of this, most of them are user friendly. Due to their friendliness, most of the businesses operations have tremendously changed as most of them are done electronically.This therefore, it follows that auditing operations should also change to keep pace of the changing environment. Yang and Guan (2004) discussed in their work on the changing nature of auditing profession in this ever changing technological environment. They explained that that information technology, information system and data processing have evolved and continue to do so in the way business organizations do their transactions, improving effectiveness in their operations and help in making decisions.Information technology growth has resulted into electronic and internet based reporting information of information. In this manner, transparency, accountability and reliability have been promoted in most of the companies. The accounting profession has to play an important role in improving the quality of information provided and assuring users about their reliability. If you look at the advertisements on the internet today, hundreds of companies are promoting virtual office equipment, software, and services, but little or none is being done with regards to controls and auditing.Searcy DL, Woodroof JB (2003) adds that it is therefore imperative for audit professionals responsible to advocate security and controls in the business environment and constantly adapt their standards, practices and techniques to meet the demands of not only virtual offices, but the several other applications that can be accommodated and enhanced with today's increasing technologies. Auditing in the information technology encompass reviews of organisation security and controls, management of information, applications, support systems, and processes.The auditors in this environment will have to be equipped with skills of the business, technical, and risk management. In respect of this, Zezhong Xiao et al. , (1997) suggests that managers should encourage companies to make greater use of IT to improve financial reporting. 5. 0 Benefits of IT in Auditing The use of information technologies now is a necessity and not something that could be used for fun. Due to changing nature of organisations’ operations, streamlining all the audit operations to suit the dynamics of business operations is of great significance.The following are the reasons why organisations should think of incorporating Information technology in their daily operation: The impact of information technology on Organisations’ audit processes, 2012 Page | 3 Electronic audits makes auditing process very simple and fast as most of the operations are done upon the click of the mouse hence reducing a huge effort that could have otherwise been exerted if traditional approaches were to be used (Coderre, (2009). Another benefit of auditing using information technologies is that it improves organisational competitive advantage (Turley, 1997).Since most of the processes, thus, planning, monitoring, controlling, and reporting in auditing are done by the use of Information technologies, and they are fast, therefore decision makers are able to make tactical and strategic decision regarding the improvement of their operation and detect risks at a faster rate. This helps them to keep pace with changing nature of business environment and put them at a better level with their competitors unlike in a business environment as opposed to those that approach business activities manually.Turley (1997) adds that Information technologies assist in maintaining quality of audit operations and documentation. This is so because they are assisted by work programmes, templates when it comes to documentation and also prescribed procedures. Auditors have also a wider range of choices, for example, data analysis tools and fraud detection software. The use of these technologies enormously improves quality and also organisation’s credibility. 6. 0 Challenges to Adoption of ACT in Auditing Most organisations do not implement audit software.There are so many reasons as to why this is so. The following paragraphs will try to explain the cost factor, poor information infrastructure, ICT literacy level, and lack of financing options that pose as the most serious factors that hinder most of the organisations from adopting information technologies (Turley, 1997). 6. 1. 0 Cost This is one of the many reasons people or business industries do not adopt the use information technologies in the execution of their day-to-day business activities inclusive of auditing functions.There is an inverse proportion between cost and Information Technology adoption rate. Once the cost is higher the adoption rate goes down and vice versa (Turley, 1997). 6. 2. 0 Poor Information Technology infrastructure Information infrastructure means internet connection, ubiquitous information technology environment and also skilled people. When the country has very poor Information Technology infrastructure, it is very difficult for individuals or organisations to adopt the use of technologies and this in turn lenders them not being empowered in terms of technology use.This poses a great threat as most of things are controlled by the state and state-owned controls often result in expensive charges and limited coverage, especially in rural areas (Phan, 2002). This also may The impact of information technology on Organisations’ audit processes, 2012 Page | 4 act as a discouragement to Small Medium Enterprises from adopting the Information technologies in their businesses. 6. 3. 0 ICT literacy level Many people are not techno-savvy and in most cases they are not sure of the benefits Information technologies can bring to their daily business activities.They also have the attitude that that Information and Communication Technologies are there for only larger companies (Turley, 1997). Though managers of these small enterprises can have strategic understanding of why they should adopt Information and Communication Technologies, their staff need to be trained. Training costs both time and money and these emerge to be the resources that small business enterprises lack. 6. 4. 0 Lack of financing option Most developing countries do not have strong financial muscles. Most of their support is from developed countries.This being the case, it is very difficult for them to adopt the use of information technologies as it needs a lot of investments in terms of finances. This in turn prevents developing countries from realising full benefits from these technologies. Coderre (2009) adds that Small Medium Enterprises usually have insufficient muscle to make huge investments to their businesses as a result of not having enough finances or any other means to have them. Most of them also fear cost that come in the process of using Information and Communication Technologies, for example, the cost pertaining to maintenance, upgrading, and human capacity building. . 0 How to Promote Use of Information Technology in Auditing Profession Auditors need to come up with new approaches to continuously monitor, gather, and analyse audit evidence so that assurance of financial information is promoted. Developments in information technology that have been registered lately can improve the availability, exchangeability, and integrity of financial statements. If efforts can be spent on these technologies, there will be efficiency and effectiveness in decision making process to the part of managers since information will be made available in real time to them (Coderre, 2009).The following paragraphs will discuss some of the ways of promoting Information Technology auditing in the industry. One of the ways is to use a strategic-systems approach. As Coderre (2009) explains, auditors need to work through the seven components of the strategicsystems, thus, Knowledge Acquisition Framework, including: considering the company's strategic advantages; determining and analysing risks; understanding key processes and competencies required to realize strategic goals and objectives; measuring and benchmarking process performance; and comparing reported financial results to expectations, using professional judgment.This will allow auditors to continuously monitor and analyse the transactions processed in a real-time style. Governments can help in promotion of the use of IT through creation of ICT Policies that will see all the organs of the government and private institutions using ICT in The impact of information technology on Organisations’ audit processes, 2012 Page | 5 their day-to-day development activities. These could be: Building strong information infrastructure and facilitating technology adoption through its legal frameworks.To Small and Medium Enterprises, government can provide tax incentives for investing in Information and Communication Technologies, subsidizing these equipment and also giving incentives for e-procurement (Kotelnikov, 2007).. Kotelnikov (2007) states that human capacity is also the most important aspect in as far as adoption of ICT is concerned. This can be taken care off through educating people. Education could in the form of training or introducing IT courses informal classrooms starting form primary level so that children should grow up to the level of adulthood with knowledge of technologies.Government can also civic educate its citizens through workshops targeting some specific industries, employees’ position and financing options can also be given to them so that people can start using these equipment. People should be given financial options like grants, credits, leasing options, and tax incentives so that those that cannot afford them should do so to develop their business. Improving literacy level among people, more especially in the use of information technologies, can have a significant impact on the adoption of information technologies.People should be taught how beneficial information technologies are right form primary schools. If this is done, IT issues will be part of their life and when budgeting, IT will be a priority. 8. 0 Conclusion The traditional way of auditing and reporting in slowly becoming out of use these days and people now are moving towards online and real-time reporting of their transactions. This therefore is resulting in more people in the business organisation would also want to move towards the state of having sustainable auditing operation.There will be a time shortly, due to rapid developments in information technology sector, whereby sustainable audit will be a need and not a want (DeWayne & Woodroof, 2003). Information Technology auditing offers a number of foreseen benefits including improved audit efficiency and effectiveness and decreased costs of capital and agency cost. Since most organisation use computers in conducting their business, it has seen audit process also evolving from the traditional manual audit system to the methods of auditing with and through computers.The paperless, electronic, on-line, and realtime applications have contributed to continuous and sustainable auditing methodologies. The use of computers has resulted in real-time accounting systems; availability of financial information and audit evidence in electronic form and creation of new procedure in conducting financial audit. Technological advancements have also increased the importance of internal controls. The major benefit has also been the reduction in time and costs auditors spent on manual examination of transactions and account balances.Information technologies have also enabled auditors to focus more on understanding a client's business and industry, and its internal control structure. The impact of information technology on Organisations’ audit processes, 2012 Page | 6 REFERENCES Coderee DG (1993). Automating the audit function: Efficiency through automationURL: John Wisely and Sons: New Jersey Deloitte, Touche (1996). The Current Impact of Information Technology on InternalAuditing Departments. URL: http://www. theiia. org/ecm/tech. cfm? doc_id=859 Grand CL