Technology to Improve Internal Audit - Research Paper Example

? Research Table of Contents Table of Contents 2 Introduction 3 2. Literature Review 3 2 New methodologies in use 3 2 1 Computer assisted audit techniques 4 2.1.2 Analytical Auditing 4 2.1.3 Expert System 5 2.2 Information System Auditing 5 3. Methodology 6 3.1 Research Objective 6 3.2 Research Methodology 7 3.3 Instruments Used 7 4. Conclusion 7 Name of the Student: Name of the Professor: Course Number: Date of the Paper: Technology to Improve Internal Audit 1. Introduction The internal audit is defined as the process of an autonomous appraisal function that is established within the organization to evaluate and examine the activities as a service. The main objective of the internal audit is to assist the members of the organization to effectively perform their responsibilities. The end result of the internal audit is to provide the analysis, assessment, suggestion, direction, and information regarding the reviewed activities. The end objective is promoting control over the reasonable cost (Kagermann 4; Trenerry 266; Pickett 325). The primary role of the internal audit has undergone radical changes. After the introduction of Sarbanes Oxley (SOX) Act in the USA in 2002 the internal audit has started to redeploy the financial control auditing (Leung, Cooper and Perera 785). This paper focuses on how technology has improved the internal audit. 2. Literature Review 2.1 New methodologies in use The recent development in the technology has led to the use of more sophisticated methods for internal auditing in the organization. The methodologies that are currently in use are (Dittenhofer 462): Computer assisted audit techniques (CAAT) Expert System Analytical Auditing 2.1.1 Computer assisted audit techniques The most dynamic way of processing audit is the use of computer assisted audit techniques (CAAT). This technology is not a new one, but requires a continuous up-gradation to increase the efficiency of auditing account inventories, receivables, fixed assets accumulation, and accounts payable. This method consists of the process of downloading the subject files and testing these files irrespective of the computer system of the auditee. The CAAT process eliminates the hand processed and time consuming substantive testing. It produces the automatic computer generated working paper, which is displayed on the basis of “by difference”. There are several other computer applications that enhance the audit operation, reduce the time consumed, and also increase the accuracy of the work (Dittenhofer 462-463). 2.1.2 Analytical Auditing The use of the analytical auditing procedure is the recent development in the process of internal auditing. This process leads to the development of the relationship between the operational or physical aspects and financial aspects. The procedures claim that there must exist some relationship and unless they exist, some mitigating circumstances must be there, or if not some investigation should be done to determine the reason of inexistence. The technique tends to find the areas that require more in-depth investigation process and also identifies the areas that require a very little in-depth investigation. This method can be used as the potential area of interest. Without the indication of the problem absence and further examination, this process cannot be used in a positive way (Dittenhofer 463). 2.1.3 Expert System The procedure of the expert system is another development that enhances the operation of internal auditing. This procedure includes computer programs that are identical to human reasoning and can be used to alert the auditor to investigate certain situations or the audit activities that should be considered as the response to the situation that appears to be unusual. Hence, two capacities are displayed by the functioning of the expert system. Firstly, the system is built on the computer program that records information automatically and compares it to the standard information that is already present to find the situation that should be investigated. This system is identical to the servo mechanism that is used in the closed circuit control system. The second capacity is the auditor feeds the information into the system, which is the result of the previous input done by the qualified auditor and leads to the identification of causes of the situation, methods related to the audit activities, the possible outcome of the unexpected situations, and the suggested recommendations. The expert system must be considered as the guide that provides suggestions and they cannot be considered to be perfect as far as the responses are concerned (Dittenhofer 463). 2.2 Information System Auditing The concept of functional auditing has been used in the internal auditing process. It has audited purchasing, marketing and sales, budget operations, insurance operations, and various aspects of production. Computer has become an important element of the operation of an organization and more specifically an important element for information processing that makes it an important aspect of every function (Root G2-2-G2-3). The IS audit is a procedure that exerts control over the system in order to assure timely, complete, and accurate processing of data, to protect the assets of IS including data, effective and efficient IS operations and maintenance and development of system that satisfies the requirement of the user. There exist four forms that are being used in the auditing and are considered in the new approach. They are application auditing, an installation review, developing system auditing and detailed functional auditing. Concurrent auditing is another significant type of IS auditing. It is an upgraded version of the after-the-fact auditing and involves auditing via the computer by using actual and test transactions in a real time status. However, there are two problems that exist in this regard. Firstly, the internal auditors participate in the system design very early. Secondly, the skill is required for the design and the development of the automated audit routines. Therefore, implementing the internal auditing process through information technology does not only reduce time, but also simplifies the work of the auditors. Thus, the study focuses on the improvement that takes place due to the use of technology in internal auditing. 3. Methodology Research is defined as the inquiry or experimentation to find something new or to revise the existing theory based on certain facts and information (Connaway and Powell 1). This part deals with the methodology that is to be used while conducting this research. 3.1 Research Objective The main objective of the research is to find how the technology has improved the internal audit process of the organization. In this regard the research will also highlight the risks that the organizations are facing due to the internal audit based on technology and what all the steps are adopted to mitigate those risks. 3.2 Research Methodology This research will be based on the qualitative analysis of the collected data. The qualitative research involves a naturalistic and interpretive approach in finding the answer to the research question. This research is based on the inductive research approach. The inductive research tries to find a pattern between the observations (Babbie 51). 3.3 Instruments Used The research involves the collection of primary data through the focus group interview that will involve the Chief Internal Auditor of three companies based in the USA. The focus group interview is done through a questionnaire that contains open-ended questions related to internal auditing of the firm. The collected data are then analysed qualitatively to get the answer of the research question. 4. Conclusion The relationship of the parent company gets revised by reorganizing and rethinking of the internal audit function. The internal audit has been responsible for detecting clerical errors and frauds due to which it is considered to be a well-accepted tool for providing the management information. Thus, internal auditing is regarded to be the integral part of the management decision making. The responsibility of the internal audit is to report the management at all the levels; that gives it a sense of commitment and purpose towards the excellence. Thus, due to this fact the internal auditing of the organization becomes the most important part; and getting it upgraded by technological impact enhances its efficiency and effectiveness. It also reduces the time involved in conducting the internal audit. This research is intended to gain a clear insight regarding how the technology has improved the performance of the internal audit and what advantages the organizations are getting from it. At the same time the risk that is involved in the whole process is also highlighted and the steps that the organizations are adopting to mitigate all these risk are also focused on. Works Cited Babbie, Earl. The Practice of Social Research. Connecticut: Cengage Learning, 2010. Print. Connaway, Lynn Silipigni, and Ronald R. Powell. Basic Research Methods for Librarians. 5th Ed. California: ABC-CLIO, 2010. Print. Dittenhofer, Mort. “Reengineering the Internal Auditing Organization.” Managerial Auditing Journal 16.8 (2001): 458-468. Print. Kagermann, Henning. Internal Audit Handbook: Management with the SAP-Audit Roadmap. Berlin: Springer, 2008. Print. Leung, Philomena, Barry J. Cooper, and Luckmika Perera. “Accountability Structures and Management Relationships of Internal Audit: An Australian study”. Managerial Auditing Journal. 26.9 (2011): 794-816. Print. Pickett, K. H. Spencer. The Internal Auditing Handbook. New Jersey: John Wiley & Sons, 2010. Print. Root, Steven J. Internal Auditing Manual. New York: Warren, Gorham and Lamont, 1998. Print. Trenerry, Alan. Principles of Internal Control. Sydney: UNSW Press, 1999. Print. Read More