When someone in the general public hears the term auditing, they likely either don't know what it is or think of the IRS auditing their tax return. However, there is an entire profession of auditing that lays behind the public eye. In general terms an audit is an "unbiased examination and evaluation of the financial statements of an organization."
Auditing Instills Public Confidence in the Stock Market
All publicly traded companies in the United States (listed on a stock exchange) are required to have an annual audit of their statements by an external auditor.The purpose of these audits of public companies grew out of the Great Depression. Due to the financial catastrophe of the times, the public lost confidence in the stock market and was reluctant to reenter it. Congress passed a law requiring audits of public companies called the Securities Act of 1933 in hopes of instilling confidence in what companies presented as their financial statements, and therefore drawing the public back into the stock market.
The goal of an auditor is to come to a conclusion on whether the company's "statements are presented fairly" and in accordance with all laws. They do this through a number of procedures. Some of the more important ones are speaking to management about how they do things, examining the internal controls in place, performing analytical procedures to detect variances in the numbers presented, and physically counting inventory on hand. Since they are independent, the auditors stick to these types of procedures and do not conduct any business on behalf of the company they are auditing.
Traditionally, one of the areas that auditors spent the most time on was the analytical procedures and other calculation based analysis of the figures of the company. To perform these checks, auditors often had to perform hundreds of calculations to say with reasonable certainty that a single number on the financial statements is free from error.
Despite the introduction of calculators, many of these calculations still required a good deal of long hand math and many intermediate steps before the auditor can arrive at their final conclusion. Due to the large amount of human judgement and potential for human error, these calculations proved not only to be time consuming, but fairly risky as well.
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| Audit Analytics is an example of an audit software program |
We all see the vast impact that expanding technology has had on our world including the vast number of Auditing is no different. In recent years numerous technologies have been introduced in the accounting field including custom built computer programs that are built around the laws and regulations that touch the industry as well as the accounting firm's company specific guidelines.
functions our smartphones can perform.
These extremely powerful technologies have vastly changed the audit landscape. By easing the burden of the timely calculations and procedures on auditors, these technologies allow the auditors efforts to be spent in other areas of the engagement.
Dr. Gary Bulmash is a professor at the University of Maryland's Robert H. Smith School of Business. He is an expert in financial accounting and auditing. Beyond being a professor, Dr. Bulmash also currently serves as the Audit Committee Chair for a public company and is active with Certified Public Accountant (CPA) education. Dr. Bulmash discussed the impact that technology has had on the audit profession.
These computer based calculations save time in two major ways. First off, while the computer is working on the calculations that the auditor feed data in for, the auditor is obviously free to work on other sections of the audit. For example, the auditor can work on physically counting an inventory while other calculations are being done concurrently.
In addition, the computers save time with their computing power. The speed at which computers are able to calculate various tests and formulas far exceeds the speed an auditor would be able to replicate on the same tasks.
The accounting firm enjoys saving time on engagements this way because it means higher efficiency of their operations. Since accounting firms are in the service industry, they have to pay their employees based on how much time they will need to complete their operations. By introducing computers to do some of the calculation based functions, the firm will not have to pay as many employees to get the same amount of work done and therefore save money.
This saved money will help the firm in two major ways. The firm will increase profitability since they have lower salary expenses for their labor. The accounting firms will also be able to gain more clients by being more competitive and attractive with the fees the client will have to pay.
Error, Cost, and Understanding Issues can Result from Increased Technology in Auditing
This increased technology in the audit profession is not however, void of drawbacks. Like most improvements in the business world, there are a number of new complications and issues that arise when you look at technology in the audit profession.
As mentioned before, computers have computing abilities and speed far beyond even the smartest of auditors. However, the computer is only as good as the information that is put into it. This means that computer calculations are still prone to errors if the incorrect information is put into them. These errors also tend to be harder to find and correct since it just spits out an answer instead of going through a process that can be reviewed, as is done by hand.
While the technology adopted by many firms ends up saving them money, this may not be true if the company doesn't select the correct system or implement it correctly. These systems, especially when they are custom tailored to an organization, are a very large up front cost for the firm that can be recovered if used correctly. However if a firm was to buy the incorrect program, for example, a small accounting firm buys a custom made program on the level of a global accounting firm, it could spell financial disaster between the upfront costs and the maintenance costs required.
Accounting Students Focus on Technology and Communication Skills to Prepare for a Career
Since the role of the auditing profession has changed, the education needed to succeed in the field has also changed. There has been an increased attention to technology based courses and technical components of existing courses in most college accounting degree programs. At the University of Maryland all accounting majors are required to take a class entitled "Accounting Information Systems" in order to graduate.
There is also an increased focus on communication skills for accounting majors. The increase of technology means that auditors will spend some of the time they save from calculations interacting with clients and relaying their findings. Now more than ever, it is critical to be able to effectively communicate an idea to the client.
statements
are presented fairly, in all material respects, in accordance with
financial reporting framework - See more at:
http://www.grfcpa.com/resources/publications/auditor-responsibilities/#sthash.9qnCYUoh.dpuf
statements
are presented fairly, in all material respects, in accordance with
financial reporting framework - See more at:
http://www.grfcpa.com/resources/publications/auditor-responsibilities/#sthash.9qnCYUoh.dpuf
statements
are presented fairly, in all material respects, in accordance with
financial reporting framework - See more at:
http://www.grfcpa.com/resources/publications/auditor-responsibilities/#sthash.9qnCYUoh.dpuf
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