Audit Technology - A Journey Towards the Year 2000 : The ANAO Experience

Michael Owens
Senior Director, Technical Support Branch,
Australian National Audit Office.

Introduction

The Australian National Audit Office (ANAO) has made significant and innovative changes to the manner in which financial statement audits are executed by integrating technology into all phases of the audit process.

The ANAO recognises that the value of technology rests not in itself but what it facilitates. As technology enables us to work differently, it provides the opportunity to work more closely with clients, to better work in teams, to eliminate waste and to perform audit work more effectively and in less time.

Vision for the Future

The technologies emerging now will facilitate substantial changes to the ANAO work practices over the coming years. Using the benefits of technology now will position the ANAO to meet the challenges of the Year 2000 and place it as a leader in public sector auditing and best practice in financial statement audit methodologies.

The concept of the "mobile" auditor will dictate the auditors' work practices. Traditional offices as they are known today will decline in importance as auditors work more at client premises and with audit teams. Continuing enhancements in communications will allow auditors access to networks from any location - home, client premises or travelling in a car or plane. Over the longer term, the auditor's office will become more a location for storing IT infrastructures, than a working environment dominated by personal offices.

Challenges for the Future

The working environment of the mobile auditor will include:

All audit planning will be done using knowledge based systems. Much of the planning work will be done with the client to eliminate rework and gather information more efficiently.
All work will be documented and stored in electronic working papers. New forms of evidence will be used in the working papers - images will be stored from electronic stills and video cameras, rather than using text to describe the evidence, thereby greatly improving efficiency and providing more compelling evidence.
All references used in researching, executing and reporting on audits will be electronically delivered to audit staff. News services will all be electronic and library facilities will require only disk space as written business material becomes redundant, not servicing the mobile auditor.
Communications will allow geographically dispersed staff to work as a team and eliminate the need for local review. Larger audit teams will flatter structures will report to fewer supervisors, thereby allowing them to have a better understanding of the engagement and be able to add more value to the client through the audit process. Technology will also facilitate more partnering across organisations, thereby allowing appropriate specialists to participate in the audit assignment.
All client communications will be electronic. There will be extensive sharing of valuable information using groupware products or similar open systems. The Internet, or its successor, will be a medium for large-scale publishing and information exchange.

While one of the benefits of technology is improved efficiency in work practices, there are critics who predict that technology will take away the auditor's judgement and will hamper lower levels of staff from learning. However, experiences in many areas where technology has been implemented indicates that judgement and decision making skills may be transferred to less senior staff more quickly than that available under less structured communications systems. In the audit environment, the output derived from technology in the form of audit procedures and risk identification will need to be challenged by the auditor and judgements made based on the auditor's knowledge of the business and the overall control environment. Also, the technology will allow members of the audit team to better understand the reasons behind planning decisions, as communication between the team and input to the technology products is a team exercise based on knowledge and experience.

The introduction of technology will also facilitate the "paperless" audit, as all working papers and communications will be electronic. The paperless audit environment will require appropriate infrastructure support and policy guidance. Issues needing to be addressed include:

Security of IT systems and communication links
Documentation Standards
Legal implications regarding the admissibility of electronic records as acceptable evidence
Back Up and retrieval facilities
Archiving of electronic files

Positioning the ANAO for the Year 2000

The ANAO's Corporate and Operational Plans integrate the professional activities of the ANAO and outline the strategies and plans on how the ANAO is to meet its responsibilities to, and expectations of, key stakeholders. Critical to this is the ability to meet the challenges of the Year 2000 and to provide outstanding quality service to its key stakeholders.

The ANAO's first step in the journey towards the Year 2000 began in 1994-95 with the completion of a review of the ANAO's information system requirements and the preparation of a comprehensive Information Technology Strategic Plan 1995-1999. The IT Strategic Plan identified significant opportunities to improve the effectiveness of auditors and, in line with this strategy, the ANAO implemented a major personal computer (PC) acquisition programme to replace the ANAO's ageing PC platform environment.

In line with the development of the IT Strategic Plan, the ANAO's Financial Audit Business Unit (FABU) in December 1994 called for expressions of interest from the major accounting firms for assistance in the development and delivery of appropriate financial statement audit technology products that would meet the emerging needs of FABU. In June 1995 the ANAO entered into a strategic relationship with Price Waterhouse under which a range of technology products would be developed to meet public sector auditing requirements. The ANAO considered this initiative would significantly enhance planning and execution of financial statement audits by fully integrating information technology into all phases of the audit process. A Technology Implementation Project (TIP) team was established to manage, develop and co-ordinate the integration of the technology products into FABU.

In order to ensure the smooth transition of the technology into FABU, a 2-year implementation programme was developed by the TIP team. During 1995-96, the first phase of the implementation plan commenced. This involved piloting the technology products on a number of selected financial statement audits. The second phase of the plan, which will occur during 1996-97, involves the full implementation of the technology products across FABU.

However, no behavioural or cultural change is easy. The ANAO was aware of the challenges that would be placed on staff, following the introduction of the new technology and recognised the need for:

staff to understand the purpose of the new technology, and
staff to develop positive attitudes as well as new skills and knowledge to perform their work in a way that would achieve the benefits expected of the introduction of the new technology.

As a result, the ANAO embarked on a change management process which involved interviewing staff to identify gaps between current and required skills necessary for the successful implementation of the new technology, the development of a training strategy to close the gap in skills and a training schedule that would minimise the time cycle between training delivery and use of the technology products in the field.

The Technology Products

The technology products employed in the financial statement audit process provide the ANAO with a suite of integrated computer tools which automates the major stages of the audit process from planning and working paper documentation through to reporting, including management of audit related issues and findings and overall control of the audit assignment.

An essential element of the technology products is their focus on assessing business, financial, operational, management, computerised information systems and control risks. As a means of providing an efficient and fully integrated audit technology solution, the technology products facilitate: -

A tailored business approach focusing on an understanding of the client's business, the nature of its transactions and its information, accounting and control systems.
A top down planning approach focusing on the client's business, how it is organised, how important business units function and how transactions are directed, controlled and recorded. This approach enables the auditor to focus quickly on those aspects of the business that significantly affect the financial statements and thereby reduce the audit effort on insignificant aspects.
A risk driven approach focused on establishing a clear link between risk factors, risk assessments and planned audit procedures.

The following table provides a description of the various technology products together with the> benefits and value to be gained from their use in the financial audit process :-

Product	Description		Benefit	Value
MAP (Multiple Audit Planner)	Product designed to record information about matters relevant to planning decisions for each business unit, including information about control risk assessments, audit scope and client expectations		More efficient and focused audit	Provides consistency in the planning approach across all business units
Planet	An expert system used for audit planning, in particular risk identification and audit procedure selection. Planet contains an extensive library of ci'udit procedures which it selects from in addressing identified risks.		More efficient and focused audit	The auditor is clearly focused during audit planning on a "top down" assessment of audit and business risks, management expectations and the overall audit objective.
Controls	Product which supports the documentation, evaluation and testing of internal controls. Controls contains an extensive library of control objectives and key control procedures that might satisfy those objectives.	Improved efficiency and effectiveness in the audit process		Assists to shift the focus on audit work to reliance on processing controls which is the most efficient approach in large IT based operations. Assists in the integration of the IT auditor in the overall audit plan and understanding of the auditee's system of controls.
Systems Auditor	A planning and support product for IT audit specialists.	Improved efficiency and effectiveness in the audit process		Improved communication between IT auditor and field auditor.
Team Mate	Electronic Working Papers enabling the creation of documents containing text, graphics, standardised audit tickmarks, cross referencing, consistent indexing and recording client documentation.	Improved efficiency and effectiveness in the audit process		Clear audit trail Control over outstanding issues Simultaneous review Exception reports Automatic cross referencing Easy access Efficient storage and retrieval Access controls and security
Predicts	A product which supports the use of multiple regression analysis which is a powerful statistical technique that analyses the relationship between dependent and independent variables.	Improved efficiency and effectiveness in the audit process		Allows reduction in detailed substantive testing.

The Role of Technology Products in the ANAO

The ANAO has developed a set of Auditing Standards which are applicable to the audits in the Commonwealth public sector. The Auditing Standards embody, where applicable, the Australian Auditing Standards and Auditing Guidance Statements issued by the professional accounting bodies in Australia.

Although the sequence of steps in which an audit takes place may vary from audit to audit, each audit involves three essential processes - planning, execution and reporting. The technology products follow this process and are consistent with the auditing methodologies embodied in the Auditing Standards.

The following tables provides an overview of the relationship between the technology products and the overall financial audit process.

Stages of the Financial Audit Process	Technology Products	Role of Technology Products			Output of Technology Products
Audit Planning	MAP	Strategic Planning			Documents engagement planning decisions, including control risk matters, client expectations, audit scope and focus.
	Planet	Integrates strategic and detailed planning			Summary Planning Report including risk identification and audit procedure selection.
	Controls	Controls assessment for strategic planning			Consideration of management control, including internal audit, processing controls and general controls, integrating computerised and manual aspects of control systems.
	Systems Auditor	IT assessment during strategic planning			IT control objectives and assertions.
	Predicts	Risk analysis during strategic planning			Summary results indicating strength of variables and model precision. This is particularly useful in identifying areas of potential risk.
Audit Management and Control (Audit Execution)	MAP	Directs attention to audit engagement considerations			Summarises planning decisions, including control risk matters, client expectations, audit scope and focus.
	Planet	Provides clear link between risk factors, risk assessments, IT controls and planned audit procedures			Interactive assistance and numerous exception reports and control facilities to support audit planning decisions.
	Controls	Supports a top-down approach for understanding and documenting financial information systems			On line assistance and various exception reports to highlight weaknesses in computerised and manual aspects of control systems.
	Systems Auditor	Establishes a clear link between IT audit objectives and work programmes			Summarises steps required to conclude on specific IT audit objectives, levels of reliance and selected controls.
	Predicts	Directs attention towards variables which appear unusual and hence have greater risk of error			On line assistance and various exception reports indicating overall strength of the model.
Electronic Working Papers {Audit Execution)	TeamMate		Supports electronic working papers for the entire audit process from preparation, review, report production and storage	On line assistance and various exception reports providing reviewers with assurance that all working papers are complete and outstanding issues have been satisfactorily resolved.
Review, Reporting and File Clearance (Audit Completion)	TeamMate		Provides efficiency gains through the review, reporting and file clearance process	On line assistance and various exception reports provided to minimise review time, facilitate export of data and provide easy access to security of working papers.

Other Technology Products

While not fundamental to meeting the ANAO's financial audit obligations, a number of other audit technology products are employed by the ANAO. These include:

Policy and Advice Manual (PAM)
A Lotus Notes database which provides staff with easy and functional access to the ANAO's comprehensive guidance on financial audit related matters and financial audit policy.
OZREF for Notes
A Lotus notes information storage and retrieval system providing an entire accounting reference library. This database provides staff with easier and more functional access to external regulation and guidance for completion of financial statement audits.
Statistical Sampling
Statistical sampling software which assists the auditor with sample selection and evaluation of results during the execution phase of the audit for compliance and detailed testing on a cost effective basis.
PC Based Computer Assisted Audit Techniques (CAATs)
PC based CAAT software designed to assist auditors in performing interrogation and analysis of computerised data files from different computer environments and systems.
Dial-in Facilities
Software that will enable the auditor to access network facilities from remote locations.

Conclusion

In an environment of dynamic change the ANAO is well placed to contribute to the accounting and auditing approach within the Australian public sector now and towards the year 2000. The ANAO is harnessing the benefits of technology to provide better strategic management and to obtain greater efficiencies in the financial statement audit process. There is no doubt that by doing this, the ANAO is increasingly, able to provide a more focused and value added service to the public sector entities it audits, to the Australian Parliament and ultimately to the Australian community.