Traditional Audit Research Articles

Implementing Benford’s law in continuous monitoring applications

Research Question: Do modern ERP systems record sufficient information to allow retrospective monitoring of accounts payable transactions? Can Benford’s Law be applied to these transactions to detect potential fraud in accounting data? Motivation: Modern ERP systems are capable of recording several thousands of transactions daily. This makes it difficult to find a few instances of anomalous activities among legitimate transactions. As organizations continue to become more complex and demand more integrated business processes, automated analytics may provide auditors and fraud examiners some degree of assurance on continuous information simultaneously with, or shortly after disclosure of information. Idea: In this study we develop a proof of concept prototype to monitor invoice transactions and identify those that violate Benford’s law. The prototype exploits audit trails in enterprise systems. Data: Data was obtained from the SAP ERP systems of two large organizations. Organization 1, a government department, provided a one month sample of accounting transaction data. Organization 2, a global manufacturing company, provided a six month sample of their transaction data. Tools: Verification and validation was achieved by obtaining independent reviews from an expert and a panel of auditing practitioners. Their feedback was sought using a survey instrument where they rated various aspects of the prototype software. Findings: A key aim was to demonstrate the feasibility of implementing Benford’s analysis in continuous monitoring applications by exploiting audit trails in ERP systems. The concept was demonstrated by designing prototype software. We found that Benford’s analysis, is a useful tool for identifying suspicious transactions. These transactions may contain possible errors, potential fraud or other irregularities. Contribution: An important contribution of the study is that the entire population of transactions for a specified time period are analyzed. This approach is in contrast with the traditional or manual audit approach which is limited because it reviews only a small percentage of a large population of transactions. The prototype demonstrates the application of technology and data analytics to process transaction data from a SAP ERP system in a near real-time basis. This represents the next step in the evolution of the financial audit from manual to automated methods.

Drivers Contributing to the Implementation of Generalized Audit Software (GAS) within Audit Firms in Malaysia

Many businesses are moving towards the usage of information technology to be in line with their daily operations. Traditional audit methods are no longer relevant these days. Generalized Audit Software (GAS) is a type of software that is suitable for auditors to perform audit tasks. GAS can assist auditors to improve the effectiveness and efficiency of audit. To date, the development of GAS in audit firms is still low, although many practitioners had argued that auditors can receive greater benefits by using GAS. This research is motivated by an interest in understanding drivers contributing to the implementation of GAS within audit firms located in the central region of Malaysia. Prior studies had placed more focus on internal auditors in large accounting firms, or auditors in other countries. However, there were not many researches being conducted on small and medium-sized audit firms in Malaysia. This study is therefore intended to fill in this gap. Data were collected using questionnaire survey on small and medium-sized audit firms registered with the Malaysian Institute of Accountants (MIA) in the central region of Malaysia. A total of 96 responses were analysed using multiple regression analysis. It was found that performance expectation, effort expectation and facilitating conditions had significantly influenced the implementation of GAS among small and medium-sized audit firms. However, social influence was found to have no significant relationship. The outcome of this study might help audit firms, software developers and academia to increase the usage of GAS to perform audit tasks. Future research should further explore on the influence of gender, age, voluntariness, experience, and other drivers contributing to the implementation of GAS within audit firms.

Knowledge audit as a key tool for business research in the information society

The article discusses and systematizes the possibilities of knowledge audit in the frames of the formation of the information society. The features of developing a methodology, organization and knowledge audit tools that meet the modern needs of the development of business audit are assessed. The problem of modern times also lies in the fact that the audit of explicit (formalized) knowledge is fundamentally different from the audit of implicit (non-formalized) knowledge. As one of the main areas of business audit, knowledge audit is highly professional consulting services in a wide range of subject areas of economic, financial, legal and many other areas of modern business. A research of the demand for this area of audit in the global community showed that the lack of an agreed methodology prevents from making the decision about conducting an audit of knowledge. The article examines modern approaches that allow combining the capabilities of modern business audit in general and information systems audit, operational audit, intellectual capital audit and knowledge audit, in particular. It is concluded that combining these types of audits into a single audit of a business shows a significant business effect. The practical significance of the article lies in the fact that conclusions and suggestions aimed at strengthening the role of modern audit contribute to the real optimization of modern business. A research made by the authors showed that the new reality of the 21st century has changed the attitude towards traditional audit, which requires justification of the business effect when introducing new information systems and modernizing old ones, moving from complex automation of business processes to specialized solutions. Notwithstanding with it, the demand for business development and IT strategies and feasibility studies is growing steadily. Projects on the use of corporate knowledge at all levels of management come to the fore.

Auditing with Data and Analytics: External Reviewer Perceptions of Audit Quality and Effort

Audit firms increasingly rely on audit approaches using data and analytics (D&A) tools but express concern that external reviewers will excessively scrutinize such approaches. We conduct two experiments in which experienced external reviewers participate in an engagement review. We manipulate whether the audit team employed D&A or traditional audit procedures, while holding constant the procedures’ level of assurance. Our first experiment provides evidence that external reviewers judge D&A audit procedures as lower in quality than traditional audit procedures. Further analyses suggest external reviewers rely on the effort heuristic, judging D&A procedures as lower in quality because they entail less effort. Our second experiment evaluates a theory-based intervention that reduces reviewers’ reliance on the effort heuristic, causing them to judge audit quality similarly across D&A and traditional audit procedures. Overall, our evidence substantiates auditors’ concerns, identifies a specific cause for the concern, and introduces a theory-based intervention that addresses the concern.

Technology-enhanced auditing: Improving veracity and timeliness in social and environmental audits of supply chains

Social and environmental audits (SEA) in supply chains prove to be difficult: costly, administratively challenging, retrospective and often lacking veracity and timeliness. The purpose of this paper is to explore the role of technology (such as blockchain, satellite imaging and others) in improving the veracity and timeliness of SEA in supply chains. We develop conceptualizations of veracity and timeliness appropriate to the SEA context. We also link veracity and timeliness to key steps in the auditing process (data collection, recording and sharing, and analysis and interpretation) and explore technology’s role in these steps. We then contrast the traditional audit process to a technology-enhanced audit process and develop an organizing framework to generate a research agenda linking technology-enhanced auditing to veracity and timeliness of the audit process, and, in turn, enhancing social and environmental supply chain performance. The novelty and value of our work lie in its exploration of how technology-enhanced auditing relates to (1) issues related to scope/focus, firm motivations for SEA, and governance of the audit function, (2) three conditions under which the benefits of technology-enhanced audits are most likely, (3) the 4 V’s of data (volume, variety, velocity/timeliness and veracity); and (4) possible mechanisms by which veracity and timeliness affect social and environmental performance in the supply chain.

О внедрении аудиторского заключения с электронной подписью

Th e main diff erence between an audit report with an electronic signature from a traditional audit report is considered: it is much more diffi cult to imperceptibly falsify the fi rst one to any persons (fi rst of all, economic entities) in practice. Th e expediency of initially limiting the introduction of audit opinions with electronic signature audit only socially signifi cant organizations is justifi ed. A statistical survey of this extremely important sector of the audit market has been conducted.

Strategic Analysis of the Development of Small and Medium-Sized Accounting Firms in Jing Zhou

The main body of accounting services in the market economy of Jing Zhou City is currently mainly composed of small and medium-sized enterprises; each year, small and medium-sized accounting firms mainly provide its traditional class audit, proxy bookkeeping, capital inspection and other services. However, due to the fact that current small and medium-sized accounting firms in Jing Zhou have the characteristics of a single structure, a large number of organizations, fierce competition and so on, these probably result in the slow development of small and medium-sized accounting firms in the local market. Based on an analysis on the current status of the development of small and medium-sized accounting firms in Jing Zhou, and the problems that may be encountered in their further development, this article proposes a series of targeted development recommendations to seek the long-term development of small and medium-sized accounting firms in Jing Zhou.

Opportunities and prospects for using digital technologies in auditing

«Вестник Санкт-Петербургского университета. Экономика» — научно-теоретический рецензируемый журнал, обобщающий результаты исследований ученых всего мира в различных областях науки, включая мировую экономику, историю развития экономики и экономической мысли, финансы, кредит и страхование, теорию и практику управления, статистику и учет, экономико-математическое моделирование.

Innovation strategy of enterprise's financial audit informatisation in the era of Industry 4.0

In order to overcome the limitations of traditional audit methods, this paper puts forward the innovation strategy of enterprise financial audit informatisation in the Industry 4.0 era. This paper clarifies the risk of false report and inspection under the background of informatisation, clarifies the hindering factors of informatisation promotion, and provides reference for the subsequent establishment of enterprise financial audit informatisation innovation method; understands the main content of informatisation audit, analyses the requirements of enterprise financial audit information system, briefly designs the system plate, and creates data table according to database management, presenting correctly. In the Industry 4.0 era, the enterprise financial audit needs to make substantial changes and innovation requirements in the face of informatisation, to achieve the goal of promoting the application of information technology in audit work, so as to truly reflect the actual situation of enterprise assets and safeguard the fundamental interests of the people.

Innovation method for centralised management and control mode of enterprise financial audit under the background of Industry 4.0

In order to overcome the problem that the traditional audit centralised management and control model has higher cost than inefficiency, an innovative method of enterprise financial audit centralised management and control model under the background of Industry 4.0 is proposed. Compare and analyse the main characteristics of different financial control modes, analyse the problems existing in the centralised financial audit management and control of different enterprises in China at this stage, determine the positioning and objectives of the corporate financial audit centralised management and control mode suitable for the background of Industry 4.0, establish and improve internal control, and organise internal. A new integrated financial centralised management and control model for banks. The experimental results show that the proposed method has higher control efficiency and lower control cost, with the highest control efficiency reaching 98.25%.

Computer Auditing: The way forward

<p>We broadly define computer auditing as any audit practices that may rely on information technology (IT). Such skill has long been argued and considered to be an important capability for both external and internal auditors for more than two decades though its applications were relatively limited in the past. In recent years, with the advance of information technology, what auditors can achieve with IT has dramatically changed. For example, auditors are now be able to perform both descriptive and predictive analyses, process both numeric and textual data, and apply such capability from assertion testing to compliance and risk assessments. This evolving capability has also brought the new term “audit analytics” to practices. Specifically, analytics focuses more on the business decisions and processes while the traditional computer auditing is mainly about audit. This improved capability and expanded scope have attracted a lot of attention with a wide range of applications. For instance, the PCAOB’s new strategic plan (PCAOB 2018 ) has highlighted that “[i]nnovations in data analytics and technology have great potential to improve the efficiency and effectiveness of financial reporting and the audit process” (p.9). Audit firms and internal audit functions have also engaged in the development and the use of analytics in external and internal audit processes (e.g., Forbes 2018; Deloitte 2016; KPMG 2016), which have potentially changed the role of internal auditors to internal consultants.</p> <p> </p>

How to operate a robust sourcing programme to manage human rights risks, and why you should do it

This paper focuses on the context in which labour rights violations are systemic in the global supply chains of food retailers. It outlines what the problems are, based on Oxfam’s experience and recent research. It discusses growing inequalities and highlights evidence that farmers and workers in supply chains that produce the food we eat are often unable to put food on the table for their own families. Women predominate in jobs that are more precarious, lower paid and lack effective representation. The paper outlines reasons for companies to act, highlighting the shortcomings of traditional compliance and audit approaches adequately to identify and mitigate risks. It explains why and how investors are scrutinising companies’ management of risks and opportunities associated with their workforce, including in the supply chain. And it alerts readers to a ratcheting up of legislation putting a duty on companies to take their responsibility to respect human rights in their operations and supply chain more seriously. Increasing awareness of social and human rights risks, opportunities and incentives can open new avenues to improve business effectiveness. Drawing on Oxfam’s experience of working with companies to address these challenges, the paper concludes with suggestions for the role of procurement professionals in ensuring good practice. It highlights the importance of understanding and support for these developments from C-suite and suggests ways that supply chain professionals can tackle these issues proactively.

Construction and application of pharmaceutical service model of traditional Chinese medicine combined outpatient in the first affiliated hospital of Suzhou university

This paper introduces the construction and application of combined in the first affiliated hospital of suzhou university. The joint outpatient is set up with senior specialists and clinical pharmacists, and independently developed the traditional Chinese medicine prescription audit system and the pharmaceutical service intelligent platform based on mobile internet technology. The multi-channel doctor- patient-pharmacist exchange platform is set up to assist doctors in drugs selection and patients management with certain achievements. Key words: Ambulatory Care; TCM combined outpatient clinic; Chinese medicine prescription audit system; Intelligent platform for pharmaceutical care; Clinical pharmacist of TCM

Artificial Ladies against corruption: searching for legitimacy at the Brazilian Supreme Audit Institution

This study depicts the search for legitimacy by four information technology artifacts in helping auditors in the surveillance against fraud and corruption by the Brazilian Supreme Audit Institution (TCU). ALICE, ADELE, MONICA, and SOFIA are Artificial Intelligence (AI) systems proposed to aid auditing processes in the public sector. A web-based survey has been used to gather the responses from 60 auditors across Brazil and semi-structured interviews with the Chief Data Officer, three IT Developers and five TCU Audit Managers selected by purposive sampling. The research finds that the use of AI-based systems is low among auditors at the TCU due to the perceived limited benefit. While some respondents recognized the advantages of the AI-based systems, they are put off by the weak theorization and diffusion regarding the meaning and the use of AI-based systems within the organization; they showed a priority for using traditional auditing methods instead of digital innovation, restricting the potential of anticorruption control by technological artifacts.

Dredas: Decentralized, reliable and efficient remote outsourced data auditing scheme with blockchain smart contract for industrial IoT

The development of cloud computing and the Internet of things (IOT) attracts more and more enterprises to outsource the data from their Industrial Internet of things (IIOT) to cloud servers in order to save operating costs and improve efficiency. However, in this environment, protecting the security and privacy of data storage is an important challenge for IIOT and cloud server provider (CSP). Data auditing could allow data owner discover malicious behaviors of CSP which destroy their outsourced data. The public auditing authorizes the trusted third part auditor (TPA) to audit the owner’s outsourced data and frees owner from regular tasks. However, the public auditing using TPA is considered a centralized auditing, and the TPA is assumed totally honest, but it is difficult to find a reliable auditing organization. In this paper, a novel decentralized auditing smart contract in Ethereum is proposed. By replacing the TPA with a designed smart contract, a decentralized auditing scheme (Dredas) is proposed, where anyone can obtain the auditing result from Ethereum without worrying about semi-honest TPA. Compared with traditional auditing, apart from being able to perform traditional auditing functions, Dredas has three important benefits over previous work. First, the random values of challenge are more secure. Dredas chooses the current blockchain nonce as a random seed to prevent any party forging random values. Secondly, in order to achieve a safe, regular, proactive auditing, the protocol writes the auditing rules into the blockchain, and uses the number blocks on the Ethereum as the security timestamp. Finally, data owner, user and CSP must pay some ether for smart contract as deposit. This way not only inhibits the malicious behavior of these three parties, but also makes it more reasonable in real life. We implement Dredas to show that the computation costs are reasonable and efficient.

An Overview of Instruments and Tools to Detect Fraudulent Financial Statements

The great corporate frauds reported over the past twenty years have damaged and undermined the confidence of stakeholders, shareholders, investors, savers, and regulators. These facts have increased the focus on prevention and detection activities and tools. Fraud is costly, therefore it is very important to prevent and detect the fraudulent event to avoid high losses and damages to corporate financial health. Fraud detection is a dynamic discipline where traditional auditing activity is strengthened with new tools like Benford's Law and Beneish Model. This paper aims to focus on the analysis of the usage and application of these instruments in detecting accounting fraud.

Can New Auditing Standards Improve the Information Environment of the Capital Market? Based on the Accuracy of Analyst Earnings Forecast

Traditional audit reports express audit opinions only by standardized texts, which makes them lack of value. In December 2016, the Ministry of Finance issues 12 new auditing standards, which include Communication of Key Audit Matters in the Independent Audit Reports, aiming to improve the information of audit reports and to reduce the information gap between companies and investors. A+H share listed companies are required to implement the new auditing standards from January 1, 2017. Many scholars study the impact of the new auditing standards on audit report users, such as investors, auditors, etc. (Louis-Philippe, et al., 2014; Christensen, et al., 2014; Wang and Li, 2019). Compared with general report users, analysts as information seekers and interpreters of the capital market (Chen and Liu, 2017), are more professional and sensitive to accounting and auditing information. Due to the high cost of private information acquisition for majority analysts, public information, such as annual reports and audit reports, is the primary source of information. The new auditing standards require auditors to disclose more audit information, especially the disclosure of key audit matters. It improves the information environment of the capital market by increasing the disclosure of the select reason of key audit matters, how to deal with them and the specific audit procedures. Then, can the implementation of the new auditing standards improve the information environment of the capital market by requiring auditors to provide more audit information, which in turn affects the accuracy of analysts’ earnings forecast? Based on the differences in the time and scope of the implementation of the new auditing standards, we use a difference-in-differences model to study the impact of the implementation of the new auditing standards on the accuracy of analysts’ earnings forecast. The study finds that the implementation of the new auditing standards improve the accuracy of analysts’ earnings forecast at the firm level, and the more key audit matters are disclosed in audit reports, the more significant this effect is. Further analysis shows that: (1) The implementation of the new auditing standards mainly reduces analysts’ optimistic bias forecast. (2) The implementation of the new auditing standards improves analysts’ earnings forecast accuracy at the individual level. (3) The implementation effect of the new auditing standards is more significant in companies with low information transparency. The contributions of this paper are as follows: (1) Using the exogenous event of auditing standard reform, this paper confirms that institutional changes can improve the information environment of the capital market, and further improves the accuracy of analysts’ earnings forecast, which enriches the relevant literature on the influencing factors of analysts’ behaviors (Bradshaw, et al., 2010; Wang and Wang, 2012). (2) This paper provides new empirical evidence on the policy effect of the implementation of the new auditing standards (Lu and Zhang, 2018; Wang, et al., 2018; Wang and Li, 2019), and responds to Defond and Zhang (2014) for the awareness of new audit reports and their value. (3) The documents on analysts are lack of study at the individual level, while this paper provides an analysis of heterogeneity at the individual level, which complements the research on individual analysts and their predictive behaviors. (4) This paper gives a positive evaluation of the new auditing standards’ implementation effect, and provides references and suggestions for the follow-up improvement of the auditing standards. This paper verifies the impact of the implementation of the new auditing standards on the information environment of the capital market. It has some implications for policy-makers and analysts. On the one hand, the conclusions of this paper are helpful for policy-makers to evaluate the policy effect of the new auditing standards. On the other hand, there are some implications for analysts. First, improve the ability of analysts themselves, so as to enhance the influence of analysts in the capital market. Second, strengthen the overall construction of the analyst industry, enhance the overall capacity of the industry, and ensure the healthy development of the analyst industry.

Data visualization and cognitive biases in audits

Purpose This paper aims to examine major cognitive biases in auditors’ analyses involving visualization, as well as proposes practical approaches to address such biases in data visualization. Design/methodology/approach Using the professional judgment framework of KPMG (2011), this study performs an analysis of whether and how five major types of cognitive biases (framing, availability, overconfidence, anchoring and confirmation) may occur in an auditor’s data visualization and how such biases potentially compromise audit quality. Findings The analysis suggests that data visualization can trigger and/or aggravate the common cognitive biases in audit. If not properly addressed, such biases may adversely affect auditors' judgment and decision-making. Practical implications To ensure that data visualization improves audit efficiency and effectiveness, it is essential that auditors are aware of and successfully address cognitive biases in data visualization. Six practical approaches to debias cognitive biases in auditors’ visualization are proposed: using data visualization to complement rather than supplement traditional audit evidence; positioning data visualization to support rather than replace sophisticated analytics tools; using a dashboard with multiple dimensions; using both visualized and tabular data in analyses; assigning experienced audit staff; and providing pre-audit tutorials on cognitive bias and visualization. Originality/value The study raises awareness of psychological issues in an audit setting.

THE VECTOR OF TRANSFORMATION OF THE MODEL OF THE AUDITING OF PUBLIC INTEREST ENTERPRISES IN UKRAINE

The subject of this publication is to substantiate the vector of transformation of the traditional audit model for public interest enterprises in Ukraine, taking into account the synergy of qualitative characteristics of the evolution of audit in world practice, the specifics of the establishment of an audit institute in Ukraine, the need to synthesize a system-oriented and risk-oriented audit methodology. An integrated audit model has been substantiated and proposed with the expansion of the subject area for evaluating systems that generate information not only about the state and results of public interest enterprises, but also about their ability to ensure business continuity, value increment and sustainable development for the future under conditions of uncertainty. The advantages of using an integrated model in the practice of auditing public interest enterprises are demonstrated, which are associated with a substantial minimization of the gap between the expectations of stakeholders and the results of the audit, as well as information risks when making economic (in particular, investment) decisions. The purpose of the study was to substantiate the relevance, nature and elements of an integrated audit model of public interest enterprises as the main goal of transformational transformations by identifying the methodological features of audit steps in world practice, identifying and systematizing the signs of an institutionalized audit in Ukraine, establishing the specificity of the expanded subject area and the audit procedures. Sources and research methods: The information base of the study was the International Standards for Quality Control, Audit, Review, Other Provision of Confidence and Related Services (2016-2017) of the Council on International Standards on Auditing and Providing Confidence of the International Federation of Accountants; Model COSO ERM (2004, 2013, 2017); International Integrated Reporting Standard; EU Directives 2006/43/EU, 2013/34/EU, 2014/56/EU and Regulation (EU) 537/2014 regarding the regulation of the audit of financial statements of public interest enterprises; official statistics on the development of audit activities in Ukraine; scientific publications; personal observations of the author. The study used methods of analogy and synthesis; systematic approach and systematization; dialectical, historical, logical, hypothetical-deductive, economic-statistical methods. Results and practical importance: the obtained results allow us to conclude that the traditional model of auditing is ineffective for enterprises of public interest in Ukraine; the consistency of the synthesis of the methodology of systemic and risk-based auditing in an integrated audit model for such enterprises, which provides qualitative transformations to eliminate gaps in the development and development of the audit institute in Ukraine. At the same time, the results of the study are interesting from the point of view of the formation of modern ideas about how to minimize the gap of expectations of stakeholders in the practice of auditing public interest enterprises. Keywords: institute of audit, public interest enterprises, integrated audit model, gap of stakeholder expectations, business continuity, sustainable development.

Design of online audit mode based on blockchain technology

In order to solve the problems of resource sharing difficulties, privacy exposure risks, illegal data invocation and cross-system consistency in traditional audit mode, this paper proposes an online audit mode based on block chain. Firstly, the traditional audit process is analyzed and summarized, and then an audit framework based on block chain is designed. On this basis, a process based on Intelligent contract is designed for the audit mode, and an online audit data platform architecture based on alliance chain is proposed. A feasible online audit under block chain environment is proposed. The implementation method helps to solve the existing problems in auditing. The scheme provided in this paper has a certain operability, which promotes the application of block chain in the field of auditing.