INVESTIGATION INTO THE IMPACT OF ACCOUNTING AUTOMATION ON EXTERNAL AUDITORS JOB (A CASE STUDY OF SELECTED AUDITING FIRMS IN LAGOS STATE)
ABSTRACT
This project work “investigation into the impact of accounting automation on external auditors job” was carried out in three auditing firms in Lagos state. The purpose of this study is to identify and explain how auditing firm started and also a brief history of some selected auditing firm in Lagos State. It also explain the legal framework and the objective or scope extent of auditing and investigation and also the factors laid down by accounting profession which is essential in ensuring that auditors carry out their duty effectively and enable them form an unbiased and accurate opinion of financial statement of any organization or firm. Thus the role of financial statement of any organization or firms automation on auditors job. A population of 120 respondents were selected through random sampling technique. The method of data collection was questionnaire, three hypothesis formulated base on the study and research question were generated from the hypothesis. Analysis and interpretation of the study was sought from the hypothesis and summary, conclusion and recommendation were drafted out from the study.
TABLE OF CONTENT
Page
Title page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vi
CHAPTER ONE
1.0 Introduction 1
1.1 Background to the study 1
- Statement of the research problem 6
1.3 Purpose of the study 7
1.4 Significance of the study 7
1.5 Statement of research questions 7
1.5 Statement of research hypotheses 8
1.6 Delimination of the study 8
1.7 Definition of terms 8
CHAPTER TWO: LITERATURE REVIEW.
2.1 Auditing 11
2.2 Historical evolution of auditing 13
2.3 The need for the it audit function 14
2.4 Objectives and purpose of an audit 16
2.5 Purposes of audit 18
2.6 Legal aspects of auditing 18
2.6.1 Appointment of auditors in an organization 19
2.6.2 Removal of an auditor from office 20
2.6.3. Resignation by an auditor 20
2.6.4. Remuneration of an auditor 21
2.6.5. Duties of external auditor in an organization 21
2.6.6. Rights of company auditors 23
2.7 Factors that assist auditors in attainment of their goals 24
2.8 Investigation and its procedures 25
2.9 General credibility of external auditing in corporate accountability
2.10 The true and fair view concept 31
2.11 Auditing computerized system 32
2.12 Evaluation internal control in computerized systems 33
2.13 Information technology audit process 35
2.14. How do auditors test controls in an edp environment? 38
2.15 Characteristics of computerized accounting systems 40
2.16 Types of information technology audits 41
2.17 Auditing techniques and procedures in computer system 42
2.17.1 Auditing around the computer 43
2.17.2 Auditing through the computer 44
2.17.3 Auditing with the computer 46
2.18 Structural analysis of audit theoretical system 47
Summary 52
CHAPTER THREE
3.0 Research methodology 53
3.1 Research design 53
3.2 Population of the study 53
3.3 Sample and sampling techniques 53
3.4 Instrument for data collection 54
3.5 Validation of the instrument 54
3.6 Method of data analysis 54
CHAPTER FOUR
4.0 Presentation and analysis of data 56
4.1 Analysis of personal data 56
4.2 Analysis of Questions 59
4.3 Testing of hypothesis 66
CHAPTER FIVE
5.0 Summary, conclusion and recommendation 84
5.1 Summary 84
5.2 Conclusion 84
5.3 Recommendations 85
Reference: 86
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Investigation into the impact of Accounting Automation on External Auditor’s Job is an issue relating to how effective the job / duty of an auditors is discharged the obtain some or better result to auditing than in conventional method. Though auditor’s aim is to examine the totality of a business and form an opinion, over the years. Auditor’s examines their client records and totality of event as extensive work especially when big and multi national companies are involved and no wonder auditor made random work.
The current trend when accounting is no longer maintained on manual record then force auditors to move from manual auditing into Electronic audit. It is the effect of electronic auditing that form the bedrock of this research work.
Auditors aim at examination of the totality of business and form opinion on client record and approached his work with the utmost care. The shift from manual to electronic lead to auditor move electronic audit.
According to smith, (1997). Effective performance of this engagement in this information age depend large on audit firms exposure to information technology as auditors are not only to audit with aid of computer but have to audit through computer.
Also Daniel, ( 2004) opined that the use of accounting/ auditing software is becoming a determinant factors in audit planning as most activities are now computer based. It is an established principle that the auditors are not only responsible to their client but also to the public, as auditors report will be relied upon various interest groups, such as tax authorities, stock exchange operators, labour union and so on. To arrive at a rational decision
With the level of fraud in recent time, the auditors who duty is to provide assurance to various stakeholders will not expected to be sound in usage of various media of information technology in draw of financial statement but also will do a lot of verification through the computer and around the computer. It is a general knowledge that it is not auditors duty to prevent fraudulent activities neither part of auditors responsible to look for fraud yet, it will call to question the technical ability of auditors if a magnitude of financial misrepresentative escape their attention merely because the report and operation are computer driven. The role of business information in any organization cannot be overemphasized as management need information to plan, organize and control.
According to Goodman and lawless, (2010) also said that information processing needs have in recent times greatly increase in volume and complexity. This is partly the result of the increase in competition among business and consequence need for faster and more accurate information for decision making has diminished the efficiency and effectiveness of conventional methods (manual and mechanical methods of processing business information).
Electronic Auditing developed largely as a result of the rise in technology in accounting system.
Organizations have become increasingly depend on computerized Information system to carry out their operations and to process, maintain and report essential information. As a consequence, the reliability of computerized data is a major concern to audit.
Information Technology is a term that encompasses all forms of technology used to create, store, exchange, and use information in its various forms (business data, voice conversations, still images, motion pictures, multimedia presentations and other forms, including those not yet conceived). It’s a convenient term for including both telephony and computer technology in the same word. It is the technology that is during what has often been called “the information revolution” information Technology is also the study or use of systems (especially computers and telecommunications) for storing, retrieving and sending information.
Information Technology (IT) auditors evaluate the reliability of computer generated data supporting financial statement and analyses, specific programs and their outcomes. In addition, Information Technology (IT) Auditors examine the adequacy of controls in Information systems and related operations to ensure system effectiveness.
Information Technology (IT) Audit is the process of collecting and evaluating evidence to determine whether a computer system has been designed to maintain data integrity, safeguard assets, allows Organization goals to be achieved effectively, and use resources efficiently. Data integrity relates to the accuracy and competences of information as well as to its validity in accordance with norms. An effective information system leads the Organization to achieve its objective and an efficient information system uses minimum resources in achieving the required objectives.
The use of computer facilities has brought about radically different way of processing, recording and controlling information and has combined many previously separated functions. The potential for material system error has thereby been greatly increased causing great cost to the organization. This is drive behind this project work.
The needs for faster and accurate information for decision making has diminished through the use of manual and traditional methods / approaches in the cause of processing information which help the external auditors in preparing their auditing reports.
According to Solomon (2012) said the use of manual and traditional approaches are not more effective due to the technological advancement in the country, because most of the auditing from were confronting many challenges or difficulties in the aspect of processing financial information for effective decision making in order to carry out their auditing assignment or job, which inadequately of computer facilities is one of the problems, so therefore there is need for more sophisticated computer facilities that can enhance effective decision making.
In recent Nigeria, most especially in Lagos State, most of the auditing firms were not so much making use of the auditing firms were not so much making use of the accounting automation in carrying out their auditing job or assignment “Accounting automation has contribute greatly to the development of an auditing firm in Nigeria. In the process of carry out auditing job which help their auditing report to show true and fair view. Akinola. A, (2013)
Accounting automation is an approach to maintaing an up-to-day accounting record with the aid of accounting software. Business software of this type is often configured to allow for easy multiple posting in order to keep accounting record in compliance with general accepted auditing standard and guideline.
Accounting automation system can be adapted to suit need of the company that purchase the software, making it possible to great customized report as well as make use of the standard report format including the software package.
The process of accounting automation can save a great deal of time when positing credit and debit, rather than having to make entries in different book as common with more tradition method. Most accounting software packages are structured to allow manual entry of the transaction in one field on one page. From then the software automatically relates the transaction as entered. The data will be included in any report generated that is structured to cover the date of that entry.
Today accounting automation is considered a basic component of most posting enterprise resource planning. The secure features and the time saving can greatly increase the efficiency of the accounting team. Inadditonal the accounting software include features that allow the generation and distribution of electronic invoice to customer. It is an extremely efficient tool. Using those features makes it possible to receive payment in a short period of time, either because the customer is able to approve the payment and the mail check is less time, or because the customer use the option to submit on electronic payment. In either scenario, the company benefits from an increase of receipts on its receivable in a short amount of time giving the business access to more cash in hand to manage the day-to-day operation.
External auditing is usually performed by some one other than the preparer or user of the information. The purpose of external audit is to examine the interal control and ascertain the following.
- Check and maintain accuracy of business data
- Safeguard the company assets against fraud, embezzlement and theft.
- Promote operating efficiency
- Encourage compliance with existing company policies and producers.
1.2 Statement of the problem
There are been much emphasis on the impact of accounting automation on external auditor job, due the fact that, whenever financial statement are prepared it is pushed to the auditor’s desk for him to form on opinion based on the necessary information supplied to him. A “true and fair” remark by the auditors, confer greater credibility on the financial statement [Olusanya 2001].
Auditor evidence is the bedrock of auditor’s opinion hence the problem related to the effect of information technology require necessary attention.
Moreso, is information technology audit effective in discharging auditors responsibility? Are there area [s] where change to improve auditor performance.
But it has been disheartening that most of the auditors working with the auditing firms in Lagos State as an external auditors neglect the aspect of accounting automation in carrying out their auditing assignment and in the case of preparing the financial report of any company and as a result of this, the financial statement might not show true and fair view.
1.3 Purpose of the study
The major purpose of the study to investigation the impact of accounting automation on external auditor’s job specifically, the purpose of this study is to
- To determine areas of improvement and change needed in computer environment to serve the auditor better in some selected auditing.
- To ascertain the efficiency and effectiveness of electronic accounting data used in auditing in some selected auditing firms in Lagos State.
- To establish the spate of fraud in the firm since the advent of Information technology audited in some selected auditing firm’s in Lagos State.
1.4 Significance of the study
This researcher believes that the outcome of the study will have been immense contribution and also assist audit firm to harness the available resources at their disposal and to block any revealed loopholes within the auditing system. This research work would help order researcher and the student who want to know more about accounting automation or computer audit.
1.5 Research Questions
The study will attempt to answer the following research questions.
- What are the areas of improvement and change needed in computer audit environment to serve the audit better?
- To what extent is electronic accounting data effective and efficient in auditing.
- To what extent is advent information technology limits the spate of fraud in auditing firms?
1.6 Research Hypotheses
The hypotheses of this research work include the following
- Automated accounting has no significant difference between information Technology and audit evidence
- Automated Accounting has no significant impact on external auditor’s job.
- There is no significant relationship between automated accounting practice and audit evidence.
1.7 Delimitation of study
For the purpose of this research only the head office will be visited, owing to the fact that it is practically impossible to visit all the branches and office of the audit firm to obtain on the above topic. All the generalization that will subsequently be made on the information supplied by the management of some selected auditing firm’s in Lagos State.
1.8 Definition of Terms
Impact – The striking of hitting one body against another or the action of one object coming forcibly into contact with another.
Investigation – An investigation mean the action of investigation or someone on formal systematic examination or research or investigation is the test which implies the examination of accounting for a specific purpose. The examination involves both financial and Non – financial information.
Account – this is the process of identify measuring and communicating economic information to permit informed judgment and decision by the users of information or Accounting is the systematic and comprehensive recording of financial transaction pertaining to a business accounting refer to the process of summarizing, analyzing and reporting thee transaction.
Automation – Automation is the technique method or system of operating or controlling a process by highly automatic mean as by electronic device, reducing human intervention to a minimum or Automation can be defined as the technology concerned with performing a process by means of programmed command combined with automatic feedback control [control system] to ensure paper execution of the instruction the resulting system is capable of operating without human intervention.
Accounting Automation – Accounting automation is an approach to maintaining up-to-date accounting record with the aid of accounting software.
External Auditor – An external auditor are independent accounting or auditing firm that are hired by companies subject to an audit. External auditor express their own opinions on whether financial statement of the company in question are free of material misstatement i.e [these could be due to fraud error or otherwise].
Auditor – An auditor is an individual who is trained to review and verify that the accounting data provided by an audited company accurately correspond to the activities that have been partaken by the company.
Auditor Job – An auditor job is to write a report at the conclusion of the audit determine the level of accuracy and clarity that the organization has accounted for e.g. if all accounting move made by the company are reflected in the book [such as the general ledger] and all the data that appear in the record correspond to the course of business in the company, then the audit will have shown no misstatement.
Auditing – An auditing is the examination of the financial report of an organization as to presented in the annual report include a balance sheet, an income statement, a statement of change in equity, a cash flow statement and note comprising a summary of significant accounting policies and other explanatory notes.
Firm – A firm is a business organization such as a corporation limited liability company or partnership. Firm are typically associated with business organization that practice law, but the term can be used for a wide variety or business operation units.
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