Impact of E-Commerce of Auditing - Research Proposal Example

phd proposal The ability of the external auditors to audit accounts and detect any manipulation in companies dealing in e-commerce Dec. Abstract The main aim of this paper is to measure the ability of external auditors in auditing accounts and detecting any form of manipulations in the companies whose operations involve e-commerce. Developments in technology and the economy in the previous centuries have resulted in considerable advancement in electronic commerce and changes in the way transactions are completed have had vital impacts on the ways in which audits are conducted. In this light, both internal and external auditors are required to adapt their activities to the evolution tendencies while being in a position to assess and understand the financial information as well as the approaches that are employed by the information systems of the firms that are to be audited. This paper mainly focuses on the issues that might be met by the external auditors while auditing businesses operating under e-commerce; it also considers whether it is possible for them to identify any form of manipulation during auditing. It also addresses the issue of how the modern accounting theories play a significant role in helping to detect any form of manipulation in accounts, income statement and financial statements of companies that deal with e-commerce more than e-commerce itself. Table of Contents Abstract 1 Table of Contents 2 1.Introduction 2 2.Literature Review 4 2.1.Auditing 5 2.2.Impact of e-commerce of auditing 6 2.3.Special considerations in auditing e-commerce transactions 8 3.Problem statement 9 3.1.Research variables 9 3.2.Research hypotheses 10 3.3.Objectives of the study 10 4.Proposed Methodology 11 4.1.Sample population 11 Bibliography 12 1. Introduction The global expansion of the use of the internet has resulted in a remarkable advancement of electronic commerce and presently, it represents a structure that comprises of sale transactions such as the purchase of goods and services generating direct revenues as well as transactions that support revenue acquisition (Clarke and Flaherty, 2005, p. 230). The transaction that support revenue acquisition include creation of demand for goods and services, guaranteeing and providing varied services to the consumers including the facilitating communication between the business and its partners. The evolutions in technology along with the expansions in the concept of online transactions has led to incorporation of the e-commerce ideal in all commercial activities implemented by the use of information and communication technologies like the world wide web, electronic funds transfer, supply chain management as well as automated teller machines among others. Consequently, the remarkable evolution of transactions seen in the electronic environment in regard to dimensions and complexity, and the broad adoption of particular practices by firms from different fields of operation have led to an enhanced interest in the research in the ability of external auditors to audit businesses in the e-commerce environment (OConnor and Goldstein, 2002, p. 94). It is imperative to mention that even though there are various exactitudes in conducting audits in the firms that operate in the e-commerce environment, the main purpose of the audits is the same (Kagermann, 2008, p. 118). The audits are supposed to communicate opinions of the financial situations, that is, if they have been achieved in all their important attributes based on appropriate standards of financial references. The core duties that are carried out by the auditors together with the main phases of auditing do not change in the case of auditing companies that operate under the e-commerce environment. With the evolution of information technology, internet has become a central part of people’s lives, with the rise of e-commerce being challenging to the traditional accounting models. Therefore, accounting founded on e-commerce needs to make particular adjustments. 2. Literature Review E-commerce involves sharing business information, maintaining business links as well as conducting business transactions using telecommunication networks where in its traditional form, it is takes place using information technologies that are cantered on interchanges of electronic data through proprietary value added networks which are quickly moving the internet (Zappalà and Gray, 2006, p. 51). The internet has developed to turn into the main inspiratory aspect of the modern e-commerce operations (Werthner and Bichler, 2001, p. 5). The e-commerce businesses that operate in the internet era, electronic commerce involves more than just the purchase and sale of products online, rather it entails the whole online process of development, marketing, sale, deliver, service as well as paying for the products involved in the transaction. These transactions take place on an internetworked market place that is worldwide through the support of global networks of various business partners. E-commerce entails using the internet as well as the Web in business transactions, and involves digitally enabled commercial transactions among various companies and people (Gupta and Sharma, 2004, p. 283). This implies that majority of the dealings will be finalised through using the internet or the web. Even though majority of the transactions usually take place over the traditional channels, the numbers of businesses and consumers who prefer to use the internet for e-commerce keeps rising (Gunasekaran, 2007, p. 88). Presently, the revenues associated with e-commerce account for more than five percent of all the retail transactions in the US and there is a huge potential for more growth. 2.1. Auditing Auditing involves accumulating and evaluating evidence concerning information with the aim of determining and reporting on the level of correspondence between the information and recognized standards; auditing is supposed to be carried out by people who are experienced and independent (Romney and Steinbart, 2013, p. 603). Auditing is methodical procedure that seeks to quantitatively acquire and assess substantiation concerning statements of economic activities and occurrences to determine the level of connection between these statements and develop standards to communicate the outcomes to the relevant users (Sterneckert, 2004, p. 111). Audits are conducted in order to develop opinions on financial statements in line with the generally accepted accounting principles at the culmination of a period in all aspects (Rittenberg, Schwieger and Johnstone, 2008, p. 11). It is also aimed at providing the management with information concerning internal control systems where the auditors are required to give the audit committee information on any deficiencies in the design of their operations that are identified in the process of the audits. Further, audits are supposed to give the users of financial statements including the investors, creditors and government departments the financial information that will assist them make decisions if they will provide resources to the company based on the information that will be provided by the external auditor. The external auditor is supposed to assess the dependability as well as soundness of the system controls of the company in all its forms with the main objective of their assessment being to minimize the degree of substantial auditing or testing that is needed to develop an opinion on particular financial statements. Public accounting firms provide the external auditors and they also exist in governments, for instance, the Government Accountability Office is seen as an external auditor as it has the ability to review the work that is done by both the federal and private firms where federal financing has been directed. Computer auditing is among the extents to which internal and external audit procedures overlap regardless of the fact that the two audit processes have different objectives. External auditing is supposed develop an opinion on the statutory accounts while the internal auditor is supposed to deal with compliance as well as efficacy in financed and business operations. Internal auditing does not concentrate in yearly results even though both forms of auditing deal with internal controls of the financial accounting systems. 2.2. Impact of e-commerce of auditing Accounting and auditing are social sciences that involve a language of figures; therefore, it has a propensity to be affected by advancements in information technology, which has developed to become one of the most important aspects accounting system (Basu, 2009, p. 1-20). It has been seen that accounting systems in different organizations have developed a reliance on the use of computers with the systems becoming more complicated in the companies that employ e-commerce through the creating of challenges for the accounting profession practitioners. Audits that are linked to the design of the accounting systems and the development of internal control systems make sure there are efficiency as well as effectiveness in accounting activities (Senft, 2013, p. 88). It is clear that e-commerce affects the manner in which a business operates as well as auditing standards as a result of the strong connection existing between business activities and accounting practices (Lubbe and Van Heerden, 2003, p. 73). In this context, it is believed that the effects of e-commerce on the standards of accounting as well as auditing results in changes in the accounting systems that are employed therefore developing a combination of issues linked to information and data security. These issues need the issuing of standards that will complement the audit standards of the computer systems as well as the internal control standards such as the roles of the auditor in the assessment of internal control systems of the company as a result of the different manner of operation. Numerous issues are associated with the nature of accounting and auditing as far as e-commerce companies are concerned such as the need to re-evaluate the attributes of errors in various forms of accounts associated with the e-commerce companies and the determinations of the accounts that may be prone to errors in these companies. Additionally, there might be issues that might affect the audits that are done on companies that operate the e-commerce form of business. In the traditional form of auditing, the audits are usually done at the end of the fiscal year, however, with the increase in technology and changes in the manner of doing business, companies that operate using e-commerce need to be continuous audited throughout the year. E-commerce also brings changes to the setting of company as well as other characteristics associated with the company, which necessitate that analytical indicators be relied on when audits in these companies are being conducted. Majority of the organizations avail their financial information through their websites and a person visiting the organization’s website can be able to access the most recent audited financial statements as well as the reports from the auditors (Gibson and Gibson, 2001, p. 18). Additionally, it is a commonplace occurrence for the company to include information such as the quarterly financial statements that are yet to be audited as well as other information and press statements that are usually referred to as investor relations. Even before the internet was adopted widely, companies regularly released publications that contained information along with audited financial statements and reports created by independent auditors with the most common example being the yearly reports of the company (Berinstein, 2003, p. 11). Based on auditing standards, the auditor is not allowed to conduct any processes that are aimed at corroborating the information, but he is responsible for assessing the information and determining if it has material consistency with the information provided in the financial statements that have already been audited. Nonetheless, the present auditing standards the auditors are not supposed to read the reports that are provided on the electronic sites, which also contain the already audited statements of the company, as the auditing standards, see this as a means of distribution of information while not considering this information as documents that can be audited. In the case of e-commerce, the audit evidence is usually available in electronic form and the auditors are supposed to assess how this influences their stability to collect substantial and appropriate evidence (Cascarino and Van Esch, 2007). In some situations, electronic evidence may be accessible at a single point in time and it may be impossible to retrieve it later if the files are altered or if the client does not any form of back up for their files (Steinfield, 2003, p. 247). This means that the auditors must acknowledge the availability of electronic evidence in the initial stages of the audit and plan their means of collecting evidence appropriately. In the cases where information may be assessed only in electronic format, the auditors have to employ automated ways to go through and assess this information. It should be noted that the aims of regulations and the goals of audits are similar and are not influenced by the operation of data regardless of whether this data is manual or automatic (Chambers and Rand, 2013, p. 617). Additionally the scope of the auditing process remains the same in the e-commerce environment (Knechel, 2001, p. 279). With this in mind, e-auditing entails the processes that apply any forms of systems utilized in information technology to assist the auditor in the documentation of the planning, controlling and auditing processes. 2.3. Special considerations in auditing e-commerce transactions Since e-commerce take place over the internet, using public networks introduces special risks for a business that is operating this form of business while raising particular accounting issues uncharacteristic to e-commerce environments. This issues include the manner in which revenue is supposed to be recognized by the business which gives access to various modules of educational materials to its registered users over particular periods regardless of the fact that the whole material is already uploaded to the websites of the company. Moreover, e-commerce activities also develop some legal and regulatory issues such as the places of execution of e-commerce dealings from a taxation point of view, the areas where the companies are registered or the areas were its web servers are situated. Global auditing practice statements provide regulations to auditors in their processes of auditing financial statements of the companies that engage in e-commerce. 3. Problem statement There are numerous issues that restrict the auditing of companies whose operations are associated with e-commerce including audit procedures and collection of evidence, reporting as well as documenting the results. The key problem of this study involves understanding “The ability of the external auditors to audit accounts and detect any manipulation in companies which dealing in e-commerce.” This can be achieved through understanding: The ability of the external auditors to audit accounts in companies which dealing in e-commerce. The ability of the external auditors to detect any manipulation in companies which dealing in e-commerce. How modern accounting theories play an essential role in helping to detect any manipulation in accounts, income statement and financial statements of companies that deal with e-commerce. 3.1. Research variables So that the validity of the hypotheses in this study can be assessed, the researcher must develop a set of variables to be utilized including: Independent variables: e-commerce Dependent variables: knowledge and skills of the external auditors, audit reports, access to financial statements, level of cooperation of the e-commerce companies 3.2. Research hypotheses So that the rationality of the hypotheses can be assessed in this study, different sets of hypothesis have to be developed first and they include: There is a significant connection between the ability of auditors to audit a company and the nature of the company There is a significance connection between e-commerce and the level of accessibility of financial statements of a company There is a significant connection between electronic information systems and that quality of the audit evidence as well as the documentation processes There is a significant connection between e-commerce operations and the ability of the external auditors to detect any manipulation There is a significant connection between the modern accounting theories and the ability to detect manipulation in e-commerce companies Therefore, the importance of this research is based on the ability of external auditors to an efficiently audit firms that operate the e-commerce form of business as well as their capability to detect any form of manipulation during the process of auditing. This is also vital in identifying the key difficulties that are hinder the auditors for obtaining relevant information, as the outcome will provide cues on the effect of e-commerce on external auditor work. 3.3. Objectives of the study Identify the aspects and characteristics of e-commerce Acknowledge the issues that affect e-commerce Determine the effect of e-commerce companies on the efficacy of external auditing as well as the connection between them Determine the impact of e-commerce on the process of identifying any form of manipulation and the connection between them Determine the role of modern accounting theories in the detection of manipulation in e-commerce companies 4. Proposed Methodology This research will take a quantitative approach and assume an objective position that will treat phenomena as hard and real (Markula and Silk, 2011, p. 200). The research will prefer to use the survey approach to collect data while trying to test various hypotheses or statements with the aim of generalization of the specific data that will have been collected. This method will typically focus on measurement and counting that will entail collection and analysis of numerical data after which statistical tests will be applied. Data that will be obtained in the research through using a descriptive analytical methodology will be gathered through: Primary Data: distribution of structured questionnaires and assessment of the responses Secondary data: consulting books, magazine, previous studies and websites among others Questionnaire will be employed as their analysis is relatively easy and they allow a large sample population to be contacted without necessarily having to spend a lot (Wilkinson and Birmingham, 2003, p. 20). They are also easy to administer with their formats being familiar to most of the people who are chosen as respondents. 4.1. Sample population The sample population that will be used for the study will be derived from the international accounting firms that are located in three local authority areas of the United Kingdom. The sample including fifty workers who will include accountants, senior auditors as well as auditing managers in Ernst and Young, Price Water House Coopers as well as Delloitte and Touché. Other companies that will be included in the study include Grant Thornton UK, Saffery Champness and Haines Waatts. The people who will take part in the study will be chosen through stratified sampling that will involve the population being sub-divided into groups of people with the same job descriptions. This method will be employed as the measure of interest may vary between the different sub-divisions of the population and the study sample will result from taking samples from every stratum (Martella, 2013, p. 129). The probability of a person being included in the study will vary according to known aspects such as their job description and the goal will be to make sure that all the sub-groups of the population relevant to the study are have proper representation. Bibliography Basu, S. 2009, Fundamentals of auditing, Pearson, Delhi. Berinstein, P. 2003, Business statistics on the web, CyberAge Books, Medford, NJ. Cascarino, R. and Van Esch, S. 2007, Internal auditing, Juta, Lansdowne, South Africa. Chambers, A. and Rand, G. 2013, The operational auditing handbook, Wiley, Hoboken, N.J. Clarke, I. and Flaherty, T. 2005, Advances in electronic marketing, Idea Group Pub, Hershey PA. Gibson, C. and Gibson, C. 2001, Financial reporting and analysis, South-Western College Pub, Cincinnati, Ohio. Gunasekaran, A. 2007, Modeling and analysis of enterprise information systems, IGI Pub, Hershey, PA. Gupta, J. and Sharma, S. 2004, Intelligent enterprises of the 21st century, Idea Group Pub, Hershey, PA. Kagermann, H. 2008, Internal audit handbook, Springer, Berlin. Knechel, W. 2001, Auditing, South-Western College Pub, Cincinnati, Ohio. Lubbe, S. and Van Heerden, J. 2003, The economic and social impacts of e-commerce, Idea Group Pub, Hershey, PA. Markula, P. and Silk, M. 2011, Qualitative research for physical culture, Palgrave Macmillan, Houndmills, Basingstoke, Hampshire. Martella, R. 2013, Understanding and interpreting educational research, The Guilford Press, New York. OConnor, D. and Goldstein, A. 2002, Development Centre Studies Electronic Commerce for Development, OECD Pub, [S.l.]. Rittenberg, L., Schwieger, B. and Johnstone, K. 2008, Auditing, Thomson/South-Western, Mason, OH. Romney, M. and Steinbart, P. 2013, Accounting information systems, Pearson Australia, Frenchs Forest, N.S.W. Senft, S. 2013, Information technology control and audit, CRC Press, Boca Raton, FL. Steinfield, C. 2003, New directions in research on e-commerce, Purdue University Press, West Lafayette, Ind. Sterneckert, A. 2004, Critical incident management, Auerbach Publications, Boca Raton. Werthner, H. and Bichler, M. 2001, Lectures in e-commerce, Springer, Wien. Wilkinson, D. and Birmingham, P. 2003, Using research instruments, RoutledgeFalmer, London. Zappalà, S. and Gray, C. 2006, Impact of e-commerce on consumers and small firms, Ashgate, Aldershot, England. Read More