Digital Assurance….High Time We Talk About It!

Background :

Standard on Auditing- SA 500 (as well as ISA 500)- “Audit Evidence” requires the auditor to obtain sufficient appropriate audit evidence to enable himself to draw reasonable conclusions before ssuing an audit opinion.

It has been a while that auditors have been making use of technology in carrying out their audit procedures. Whilst the traditional audit procedures such as vouching continue to be in vogue, the advent of tech tools definitely give the auditors a good reason to use technology extensively,wherever feasible.

Audit evidence refers to both information obtained by the auditor from the books of account as well as that obtained from external sources. Audit evidence obtained using automated audit procedures provide enhanced assurance to audit committees and other stakeholders as it is believed that the possibility of an error is almost negated.

The Institute of Chartered Accountants of India (ICAI) has released a Technical Guide (“Guide”) in January 2023 on digital assurance which provides examples of various external data sources and how they can be used in audits of financial statements to obtain relevant audit evidence.

The Guide, while stating that an auditor may use digital information from external sources across various phases of the audit, also gives certain examples of how digital information from external sources can be used while conducting audits.

Digital Auditing :

Of late, there is an increased focus on data management, which is facilitated by extensive usage of Computer Assisted Auditing Techniques (CAATs) and other data management softwares, making it possible to process the entire data population, as against a sample.

In addition to the above digital tools, which are already being used in audits, more advanced technologies such as AI and drones could also have a role to play in the near future, which will  necessitate change in the way audits are conducted.

In the above context, certain specific issues vis a vis auditor’s consideration of audit evidence,
may be categorised as under:

  • Changes in the sources of information and how the information is processed, Communicated, and used,
  • Continual development in technology; and
  • Professional skepticism

Illustrative cases of digital data used in performing audit procedures :

A. Statement of Profit and Loss
Areas Procedures
Sales process – Cut off testing Auditor can take the e-way bill register and sales register with delivery terms and the date of delivery. This can be used to map the delivery terms and date in sales register with the dates in the e-way bill register to ensure that the revenue is recognised in the correct period.
GSTN Portal: Electronic Ledgers Auditor can verify the completeness of revenue and purchases to a great extent on the basis of these ledgers. Following are the major line items over which comfort could be obtained on balance with government authorities, refund claimed and outstanding, ITC claimed and so on.
Payroll process – employee master data validation through provident fund portal using UAN number Auditor can compare the details available on the Employees’ Provident Fund Organisation portal with the employee master and identify discrepancies in PAN details, Aadhar details, Bank account numbers, previous employment details, educational qualifications etc.
Benchmarking Auditor can analyse and benchmark the revenue growth, EBITDA percentage, net profit percentage, margin, contribution of the company with all the peer companies in that particular sector. This can help to analyse whether the figures of the financial
statements are in line with the industry standards
B. Balance Sheet
Areas Procedures
Debtors / Receivable process Auditor can leverage the credit rating and map them with the customers with whom the entity is transacting. On performing this analysis, if auditor notices that significant
amount is receivable from companies who are rated as likely to default on their financial obligation, then the audit team can perform specific and detailed audit
procedures to assess recoverability of such dues.
Bank reconciliation process Auditor can take the bank ledger from the entity’s ERP and bank statement from the banks’ website and can re-perform the bank reconciliation for a given period. Further, the auditor can obtain the rights to login and view the bank accounts. If this is available, the auditor can verify the account balances using this external source and agree the bank statements provided by the management.
Procure to pay – GST Input tax
Auditor can identify fictitious GSTINs in the vendor master wherein no details of such GSTINs are available on the GST portal. Similarly, Auditor can also Identify cancelled and suspended GSTINs from the portal.
Conversion of foreign exchange
into INR
Indian Accounting Standards requires company to translate foreign figures into INR at each reporting date. To gain greater comfort over the translation of foreign
exchanges into INR, an auditor can automate the working to check the accuracy of conversion.

Conclusion :

The advancements in data and technology across the world have put the power of data and computing in the hands of the end-users. These users are assisted by various online tools as well as open-source software which enable them to access the data from external sources and analyse it to obtain meaningful analysis and insights.

As far as the auditors are concerned, they will be able to deliver high quality audits only by making use of technology, especially in case of large companies. It will therefore be in the auditors best interest to invest in technology as well as train its resources to ensure they are able to use technology to their best advantage.

Author : Puneet Sharma

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