Impact of E-Commerce on Auditing Standards - Dissertation Example

?Table of Content Introduction 2 2. Literature Review 4 2 A Brief Look at Ecommerce 4 2.2 Issues relating to Audit Planning 5 2.3 Issues relating to the implementation of audit plan 8 2.4 Impact of E-commerce on Auditing 10 3. Research Objectives and questions 13 4. Research design and methodology 16 5. References 17 1. Introduction: The era we are living today is recognized as the information age. Information system has evolved in such a way that today every aspect of human life has started to be relied on this system. Continuous innovation in the information world has drastically changed the nature of works of business organization as well as of individuals. Substantial dependence on information system has also enhanced individuals’ innovative power. Today people can not only dream about some spectacular thing, but they can actually give a realistic shape to their dreams with the implementation of information system. For example, a few decades ago it was even beyond imagination that people can get the opportunities to enroll themselves in any foreign universities without making any physical presence. But continuous and spectacular innovations in the field of information technology have made people dream about distant learning where they can be in continuous touch with their tutors and college administration without making there physical presence in college campuses. Thus information system not only revolutionized they way people do their works, but also the way people think. In this age of highly improved information age ecommerce has become a very popular term. E-commerce can be defined as “the use of electronic transmission medium (telecommunication) to engage in the exchange, including buying and selling of products and services requiring transportation either physically or digitally from location to location. Introduction of ecommerce has been found to have produced some positive effects on economic performance of a country. It offers innovative ways of selling, delivering and receiving of goods and services and affects almost every industry and all aspects of business mechanisms and in this process dramatically contributes to productivity enhancement of the industries. In the field of auditing, ecommerce has been taking its place at very fast pace. However, it would be The proposed study will consider a particular set of widely used auditing standards in order to evaluate the effects of ecommerce on that set of auditing standards. For the purpose of the proposed study, the impacts of ecommerce on US GAAS (US Generally Accepted Auditing Standards) will be studied. Thus the theme of the study can be written as follows: Effects of e-commerce on a particular set of auditing standards, i.e. US GAAS, in terms of the application of US GAAS and the outcomes. However, before proposing research questions and relevant research methods, it is very necessary to look into the findings of existing literatures in the relevant field of study. Given the research theme stated above, a number of research questions and corresponding hypotheses should be postulated in order to asses the impact of ecommerce. Now, one thing should be mentioned at this juncture in order to understand the next section that a number of factors are associates with the application of a particular set of auditing standards. The most vital factors are audit planning and implementation of audit plan. The research questions that should be presented later in this proposal should take into account all these facts. Apart form these, some parameters relating audit plan and implementation of audit plan should be taken into account in this research in order to measure the effect ecommerce on these variables. The literature review section should explain all the issue relating to impact of ecommerce on auditing, issues concerning audit planning and issues relating to proper implementation of audit plan. All these will provide required explanations of the research questions to be postulated after the literature review part. 2. Literature Review: This section will look at the findings of various literatures relating to the relevant field of study. Given the research topic, first of it is very necessary to understand ecommerce. Hence this section will first look at various aspects of e-commerce. Then it is necessary to reflect good understanding about auditing standards. Now application of any particular auditing standard necessarily involves designing the plan of audit and the proper implementation of audit plan. Therefore, this section will also offer a close look at various aspects of audit planning and implementation of audit plan as the understanding of these issues will help in formulating the research questions given the topic of this research. Thereafter, this section will discuss the findings of existing studies that explains various issues relating to auditing with reference to ecommerce. 2.1 A Brief Look at Ecommerce: E-commerce is quite a new idea that explains the method of selling, buying or exchanging of goods and services along with various information by means of a well structured computerized network that include internet as well. E-commerce has a number of interesting features as follows: The Absence of Paper Documents in the process of Commercial Transactions. Lack of Ability to Recognize Contractors Products Delivered Electronically Absence of Direct Relationship between the Contracting Parties The Presence of the Electronic Mediator Speed in the Completion of Business Transactions Collective Interaction between Several Parties . (Turban, 2004; Carter, 2002) 2.2 Issues relating to Audit Planning Audit planning is the first step of auditing. It is the main pillar of the entire audit process (Al umari and al mutaz; 2007). The first stage of any audit mission, i.e. audit planning, has some of the most important purposes which guarantee that almost all the given segments which will undergo audit shall have to be handled with care and full attention. One should be able to identify the problems which may cause serious problems, reviews, verifying the falsifications, taking care of the assignments and the tasks amongst the team members. The usual maintenance the various cost factor of the given work at a certain level which is indeed reasonable, even avoiding any conflicts with valued customers. There are certain fundamental points which any good auditor should take care of. (Turban et al. 2004) The economic condition in general and the field of activity: An auditor should have sound understanding on the internal system of control as well as on that of accounting so that there is less risk for production of errors, shortage in administration as well as frauds The risk of the audit and all other first round materiality The extension, period and characteristic of the procedure which will have some effect on the process: The direction supervision, review of daily work and coordinating the whole process Other aspects includes issues like observing any given rule on which the activity is based upon, and laws relating to continuity of the work, conditions which needs special attention, some explicit terms and contract, the given category of the insurance and lastly the deadline to produce the report of auditing. The planning of the audit has six stages to be followed mainly, this also covers various interest of the previous aspects mentioned earlier. 1. Knowledge of business and the customer 2. One should get information about the judiciary 3. The executive department should be strong 4. Determining the materiality as well as the risk oriented in evaluation 5. Proper understanding of the evaluation and the internal control. The information which are mainly obtained on the given three steps mainly support the head of the auditing group in accepting the decision which will be taken to the valued and new customers for the continuation of the cooperation with the present customers, the proposal of the fees for any of the audit services, the decisions an auditor has to take regarding probative elements is to be taken into account by collecting it, the collected information should be checked throughout the mission, the employees need to be appointed, who shall take part in this team of auditing as well as obtaining the latter of commitment. (Al umari and al mutaz; 2007) The final stage of the whole process is elaborating the audit plan in general on which the audit programme shall be created by the auditor. This programmes contains a purpose of the systematic emphasize on the observance of the total procedure which is thereby stipulated in International Audit Standards so that the mission is accomplished. The total plans and program of the audit is liable to certain reviews and modifications as per the work require. The auditor is pursued of maintaining all the changes in a file for reference. (Al umari and al mutaz; 2007) The company prefers to use a virtual environment for executing the work, especially for the planning activity, only when one can see a significant effect. In such a case, the auditor should look for the given and required information as well as knowledge about the internet which says that: Having a total understanding of the impact on the entire economical strategy as well as activities, the technologies which are used and lastly the risks that are usually to arise. The actual determination of the extent and nature of the total procedure and the different methods used in case of evaluation of the evidences. Consideration on the fact of the extension of the e-commerce activities, their potentiality on the entire ability for continuing the concern. (Al umari and al mutaz; 2007) 2.3. Issues relating to the implementation of audit plan: In order to implement an audit plan several things should be kept in mind. More importantly a number of tests are required to perform to ensure high quality implementation. In order to implement an audit plan, it is quite essential to have a great audit strategy. (Casarino, 2007; Cosserat, 1999; Cosserat, 2002) An appropriate strategy on the assessment of the audit does include the risk factor, materiality as the environment. In many of the situations it is apparently seen by the auditors sticking to the fact that one cannot achieve anything just by assessing the risk of control. The situations are as follows: If the entities are small then the controls are not that effective; from the given understandings of accounting as well as the control systems which is apparent as the controls are highly inadequate; prior to the audits which have been revealed an inadequate controls; There are some transactions in such a class of transaction or the items which are making up the account balance so that the procedure ar not that costly. In such situations, these auditors would have to proceed for drawing up a total audit program which consists of the entire procedure. In all these situations all the auditors are suppose to take some preliminary assessments for controlling the risk. (Cosserat, 1999; Cosserat, 2002) It is taking into consideration of these assessment on the preliminary level, the audit programme is been drawn by an auditor for the incorporation of the various tests on the substantive and the control procedures. The testes which are meant for controlling the procedure is usually designed for the verification of the control procedure which are operating. The segmented level of these planned tests of the consolation does depend on assessing the level. T is noted that the higher the actual level of various tests on the controlling part, lower the risk level. It is always better if these auditors could have waited until all the tests meant for controlling have completed before the specified planning of the substantive procedures. However, it has been seen that the results meant for controlling usually give the level of accession on the risk of control and this is how the strategy is planned. (Cosserat, 1999; Cosserat, 2002) There are a large range of large and small tests that ensure the fact that operation panel controls and on the same time gives a confirmation on the assessment of risk. Tests for the control are aimed for detecting the deviations which are laid down. This includes whether the documents have been approved, reconciliations being performed on the regular basis. All these tests help in improving the overall auditing standards by improving the process of implementation of audit plan. Tests for the control do involve: Proper and careful examination of the given document for any evidence on the approval or acknowledge the level of performance Such procedures should be observed like payouts of the wages, cash receipts and to ensure the level of performance, segregation of the duties being applied; Rechecking the fact that all the procedures being performed properly Application of the data for the computer programs for ensuring that the programmed controls are in proper condition. (Cosserat, 1999; Cosserat, 2002) If all these tests do not give the confirmation of the control of operation of the planning control, then for sure the strategy of the audit shall one considered and the level of the substantive procedures might increase. Considerations of the effect for the assessment on control risk for different level of the procedure should necessarily aim at achieving the level which is desired for the detection of risk, the nature of the auditor may vary, extent or timing. (Cosserat, 1999) 2.4. Impact of E-commerce on Auditing: In business environment there has been a tradition of using computers for networking communications and transactions since a long time. For example, using computer networks or electronic data interchange (EDI), remote computer frequently involves interaction with business processes. However auditors consider the new element of risk introduced by e-commerce when planning and performing the audit of the financial statements as the use of the internet for all types of business entities is increasing. In the year of 2000 Glover and Ijirii, together conducted a combined study where the purpose of the study was to look at the recognition principle of revenue. The study included the theoretical accounting framework in reference of e-commerce. Among a number of results most important summery results which the survey has produced are described as follows: First of all, in the traditional accounting there is a weakness that is not to consistent with the requirements of e-commerce. Mostly through e-commerce standards or principles or concepts are absent to identify mechanisms of revenue recognition. Second, for documenting the documentary in a traditional commerce there is a design in current form of the conceptual framework, within the availability of factors. So, with e-commerce operations it is not able to keep up. Third, as the U.S. accounting standards preparation was designed according to the basis of the conceptual framework for traditional commerce, these standards may not be sufficient enough to achieve the goals in the processes of its measurement in e-commerce.. In the year of 2002, on the basis of the views of other scholars in Canada, Pathak conducted a descriptive study in previous studies. This was for the role of internal auditor in the accounting information systems in reference of e-commerce. It primarily focused on the role of the Internal Auditor where the whole responsibility to give any suggestion on performance is on the Internal Auditor for assessing direct and control system. Summary of reaching a number of important results are as follows: First, in this type of operation the success of internal auditor in checking, according to the mechanism tracking e-commerce operations this used in some development projects such as the particular type of commerce. Second, technology and high technology are the must having characteristics for any internal auditor exercise. Third, the perspective of auditors and the success of e-commerce has a positive relationship between the effectiveness of internal control. Fourth, senior management highly understands this type of auditing. Fifth, the audited complexity of e-commerce is one of the negative aspects facing auditors. In the year of 2003 Pathak in the Audit Process has identified a number of success factors in reference of E-Commerce. These are mentioned as follows: 1. Understanding the required audit process. 2. Intensive training for auditors of e-commerce. 3. The need of a cumulative experience of the auditors of e-commerce. 4. Auditor should enjoy technical skills and high technologies. 5. Available all of various auditing tools and systems supporting them. 6. Available self auditor ability to govern vocational specialist. 7. The ability of auditor to adapt audit planning procedures in line with the second part of this study on the proposed model. In the year of 2006 for determining efficacy of the process of auditing e-commerce Pathak aimed to determine the impact of some electronic auditing factors. He found that the success of the process of auditing and updating of e-commerce management experiences has a positive relationship which entrusted with the development of regulations, the evidence that more modernize the management of systems development, successful electronic auditing more often. He found information management experiences, management experiences is also having positive relations between them, contacts and e-audit so that whenever in increased efficiency in checking mail they experience the largest information management. 2.5 An introduction of the US GAAS GAAS (Generally accepted Auditing Standards) is actually a set of auditing standards which help in maintaining desired quality of auditing and evaluating audit process and its outcomes. Many organizations in different areas have developed GAAS. One of the most popular and widely used GAAS is the US GASS. The US GAAS consists of as many as ten standards for auditing. All these standards under the US GAAS have been developed by the Auditing Standards Board of American Institute of Certified Public Accountants. (Ramos, 2005) Under US GAAS, the auditors should possess sufficient training and efficiency for performing the job of auditing. They should also try to maintain independence in their mental approach in all possible issues related to the process of auditing so that neutral judgment could be produced. Under US GAAS, it is also necessary to design proper plan and efficiently supervise the plan in its implementation. (Ramos, 2005) 3. Research Objectives and questions: Objectives: There have been a number of existing literatures relating to the impact of ecommerce on the field of auditing. However, there does not exist many studies on the effect of ecommerce on the auditing standards, particularly on the US GAAS. Hence, the objective of the proposed study is to look into this area, i.e. in short the proposed study aims at finding out the impact of ecommerce on the US GAAS. From the earlier section of literature review it is found that audit planning and implementation of audit plan is two inherent component of any audit process. Thus in order to measure the impact of ecommerce on the US GAAS, it is essential to determine the impact of ecommerce on pattern of audit planning and implementation of audit plan required to perform audit following the US GAAS. To be specific, the proposed study has the objective to find out whether implementation of ecommerce in auditing has resulted in any changes in the field of audit planning and implementation under the US GAAS. Hence to check the impact on the US GAAS of ecommerce, the following research questions can be considered Research questions: 1. Does e-commerce needs any special training and proficiency of the auditors to conduct audit using the US GAAS, or conventional type of training or proficiency level required under the US GAAS is sufficient to perform auditing in this age of ecommerce? 2. Does e-commerce require more professionals, more work time per auditor and more tests relating to auditing to conduct the process of auditing using the US GAAS that what is usually required by the US GAAS under traditional set up? 3. Is the traditional accounting system and the method of revenue recognition under the US GAAS consistent with the requirements of e-commerce, or the implementation of ecommerce have resulted in the use of new accounting system in auditing process under the US GAAS? 4. Research design and methodology: For the purpose of the present research, quantitative research tool will be used by utilizing secondary data. Quantitative research method seem to be the most appropriate one as the significance of the impact of ecommerce can not be captured accurately without employing statistical measures. For the purpose of this research, we should have secondary data on factors like work time of auditors, number of auditors, number of tests of control, etc. However, the secondary data on these factors are not easily available. Financial statements, annual reports do not generally provide information all these factors. Hence, initially a number of companies from various sectors should be chosen randomly and there company officials should be contacted in order to provide required information related to the research questions. It is not necessary that all the companies chosen in the initial sample will be ready to provide all the required information. Information is generally stored in private records of the companies. The final sample of the companies will include only those companies that will agree to provide all the required information. Once final sample is decided, the companies will be asked to provide the information for the year in which they implemented ecommerce and the previous year. The company officials will also be asked about the neutrality of the technical auditors at the process of auditing before and after the implementation of ecommerce. The difference in the value of each factor before and after the implementation of ecommerce will be examined using statistical t tests. 5. References: 1. Pathak, Jagdish, (2002), “A Tale of Compatible Twins! Success of E-Commerce & Information Systems/ internal Auditors”, Paper No. 373761 online available: (www.ssrn.com). 2. Pathak, Jagdish, (2003), “A Model for Audit Engagement Planning of E-Commerce”, Paper No. 373763 online available: (www.ssrn.com). 3. Pathak, Jagdish, (2006), “Empirical Assessment of Effective E-Commerce Audit Judgment”, Paper No. 977851, online available: (www.ssrn.com). 4. Glover, Jonathan C., Yuji Ijiri, (2000), “Revenue Accounting in the Age of E-Commerce: Exploring Its Conceptual and Analytical Frameworks”, Paper No. 228163, online available: (www.ssrn.com) 5. Cosserat, G., W. (2005). Modern Auditing, 2 nd Edition, England: John Wiley & Sons, Ltd. 6. Al umari , moh fawas , Ihsan saleh al mutaz ( 2007). E-commerce impact on planning auditing, economy and management, Vol, 21, no, 2 pp. 151-182. 7. Casarino, E. R. (2007). Auditor’s Guide to Information Systems Auditing, New Jersey, Canada: John Wiley & Sons, Inc. 8. Turban, E., King, D., Lee, J.& Viehland, D., (2004), “E-commerce A managerial Perspective”,New Jersey: Pearson Education, Inc., Upper Saddle River. 9. Carter, J. (2002). Developing e-Commerce Systems, Prentice-Hall, Inc. New Jersey. 10. Cosserat, G. (1999). Audit strategy. available at (http://www2.accaglobal.com/archive/sa_oldarticles/49870) 11. Ramos, M. J. 2005. Wiley Practitioner's Guide to GAAS 2006: Covering All SASs, SSAEs, SSARSs, and Interpretations. John Wiley and Sons. Read More