Comparison of Generalized Audit Software ppt

1  ComparisonofGeneralizedAuditSoftware Intoday’smodernandcomputerizedworldevensmallcompanieshavehugenumbersof financialtransactionsgoingthroughthebooks.Asan(external)auditor,it’syour responsibilitytoanalysethesetransactionsandultimatelytoformanopinionastowhether theaccountsshowatrueandfairviewofthecompany’sposition. Butwiththishugenumberoftransactions,it’simpossibletoanalyseeverythingmanually, sowhatisthealternative?Theansweriswhatisknownas“generalizedauditsoftware”. Generalizedauditsoftwarepackagesaretoolsdesignedspecificallyforauditorsandhave twomainfunctions: 1) Tofacilitateandautomatethetestingof100%ofapopulation 2) Tofocustheauditorsattentiononspecificareasortransactionswhichareofhigher risk Manyauditfirms(andinternalauditdepartments)havealreadyimplementedaudit software,howeveritisalarmingthattherearestillmanythathavenot.Themostcommon reasonfornotusingsuchsoftwareisnotwhatyoumightexpect,cost–it’seaseofuseand learningrequirements.Butthisisamyth–auditsoftwarehasbecomefarsimplertouse, andtherearenowevenacoupleofproductsthatrunwithinExcel. It’sbeenafewyearssinceIlastcomparedtheGASandfrauddetectionpackagesavailable, andasthereareacoupleofnewplayersinthemarketIthoughtitwastimeforanupdate. Herewe’llcomparethefourmainGASproducts.I’vealsoincludedExcelinthecomparison, asit’softenusedasasubstituteforGAS,andcanperformmanyofthemoresimpletasks. We’lllookat  Dataanalysisfunctions  Easeofuse  Otherconsiderations  Waystoselectaproduct Product Phone Web ACL 604‐669‐4225 www.acl.com ActiveDataforExcel 613‐569‐4675 www.informationactive.com Excel Seewebsiteforlocaloffice listing www.microsoft.com IDEA 888‐641‐2800 www.audimation.com TopCAATs +44(0)8458681424 www.topcaats.com  2  Coredataanalysisfunctions  Thematrixbelowsummarizesthemostcommondataanalysisfunctionsbysoftware vendor.Acheckmarkisplacednexttoeachfunctionifit’sastandardfeatureofthetoolor couldeasilybecompletedusingthesoftware’snativefunctions.Forexample,itmaybe possibletojoinorcompareanemployeeaddressfiletoavendoraddressfileusingthe VLOOKUP()functioninExcel,butthiscanbeacomplexfunctiontouseandisn’tflexiblein approach.Therefore,fortheJoin/Relatefunctionbelow,Excelwasn’tdeemedtohavethis functionality.Ontheotherhand,IDEAsoftwarehasaCrossTabulatecommandthat’s specificallylistedaspartofitsstandardmenusandsoInoteinthematrixthatithasthis function.  Feature Description ACL ActiveD atafor Excel Excel IDEA TopCAATs Aging Producesagedsummariesofdata basedonestablishedcutoffdates √√ √√ Append/Merge Combinestwofileswithidenticalfields intoasinglefile.Anexamplewouldbe tomergetwoyearsworthofaccounts payablehistoryintoonefile. √√√√√ CalculatedField/ Functions  Createsacalculatedfield(whichcan useaField/functionsuchasABSfor theabsolutevalueofFunctionsthe field)usingdatawithinthefile.For example,thenetpayrollpaytoan employeecouldberecalculatedusing thegrosspayfieldanddeductingany withholding/taxes √√√√√ CrossTabulate Allowsyoutoanalyzecharacterfields bysettingtheminrowsandcolumns. Bycross‐tabulatingcharacterfields, youcanproducevarioussummaries, exploreareasofinterest,and accumulatenumericfields. √√ √√ DigitalAnalysis/ Benford’sLaw  Audittechnologydesignedtofind abnormalduplicationsofspecific digits,digitcombinations,specific numbers,androundnumbersin corporatedata.Sincetheobjectiveis tofindabnormalduplications,auditors needabenchmarkthatindicatesa normallevelofduplication.Benford’s Lawgivesauditorstheexpected frequenciesof thedigitsintabulated data.Thepremiseisthatwewould expectauthenticandunmanipulated datatoexhibitthesepatterns.Ifadata setdoesn’tfollowthesepatterns,this maybeacauseforauditorconcern andreview √√ √√ Duplicates Identifiesduplicateitemswithina √√√*√ √ 3  specifiedfieldinafile.Forexample, thisreportcouldbeusedtoidentify duplicatebillingsofinvoiceswithinthe salesfile Export Createsafileinanothersoftware format(forexample,Excel,Word)for testing.Anexamplewouldbeto exportcustomeraddressinformation toWordfor“MailMerge”ingto customerconfirmationletters √√√√√ Extract/Filter Extractsspecifieditemsfromonefile andcopiesthemtoanotherfile, normallyusingan“if”or“where” statement.Examplesinclude extractingallbalancesovera predefinedlimit √√√√√ Gaps Identifiesgapswithinaspecifiedfield inafile.Forexample,identifyanygaps inchecksequence √√ √√ Index/Sort Sortsafileinascendingordescending order.Anexamplewouldbesortinga filebysocialsecuritynumbertoseeif anyblankor“999999999”numbers exist. √√√√√ Join/Relate Combinesspecifiedfieldsfromtwo differentfilesintoasinglefileusing keyfields.Thisfunctionisusedto createrelationaldatabasesonkey fields.Itcanalsobedoneinan unmatchedfashiontoidentify differencesbetweendatafiles. √√ √√ Regression Regressionanalysisusingstatistical meanstocalculateadependent variablebalance(suchasnetsales) basedonvariousindependent variables(forexample,product purchases,inventorylevels,numberof customers,etc.). √ Sample Createsrandomormonetaryunit samplesfromaspecifiedpopulation √√√ Statistics Calculatesvariousstatisticsona selectednumericfield.Thesemaybe totalpositiveitems,negativeitems, averagebalance,etc. √√√√ √ Stratify Countsthenumberanddollarvalueof recordsofapopulationfallingwithin specifiedintervals.Stratificationsalso provideausefulviewintothelargest, smallest,andaveragedollar transactions. √√ √√ Summarize Accumulatesnumericalvaluesbased onaspecifiedkeyfield.Anexample wouldbesummarizingtraveland entertainmentexpenseamountsby employeetoidentifyunusuallyhigh √√√√√ 4  paymentamounts. Testgrouping Thesearegroupsoftestsalldesigned toberunsimultaneouslyonaspecific reportorareaoftheaccounts,e.g. journalslistings,tradereceivables, fixedassets,etc ? √#√ Highlight differences Highlightsthedifferencesbetween twodifferentversionsofareport ? ? ?√ Outlierextraction Searchesforrecordswhichlieatthe extremesofapopulation(e.g.all invoicesthatexceed3timesthe averageforthatsupplier) ? ? ?√ *Excel2007only #Availableatadditionalcost  Asyoucanseefromthematrix,alltheproductshavesimilartoolsandfeatures.Thefour specialisedproductsalloffermorefeaturesthanExcelastheyarewrittenforthisspecific purpose.AlthoughExcelisanincrediblypowerfultool,andwillcontinuetobeusedby auditorsforyearstocomeitdoesfallshortwhenitcomestomorecomplexorspecificdata analysis.However,whencombinedwithActiveDataorTopCAATs(whicharebothadd‐ins forExcel),Excelistransformedintoaverypowerfuldataanalysisplatform.  Andwhilepriceshouldn’tbetheonlyfactortoconsiderwhenchoosingGAS,thecostof ActiveDataorTopCAATsislessthan¼thepriceofIDEAorACL(basedonsingleuserlicense andalreadyhavingExcelinstalled).  ACLandIDEAarebothunrestrictedtotheamountofdatathattheycananalyse(limited onlybythesizeofyourharddisk).ActiveDataandTopCAATsareallsubjecttothesame restrictionsasExcel,whichinversionsuptoExcel2003is65,536rows.However,Excel2007 allowsanalysisofover1,000,000recordsandbothActiveDataandTopCAATsarefully compatiblewiththis.  ACLandIDEAarealsofasterat analysingdatathanExcel,ActiveDataorTopCAATs,although noneoftheproductswereparticularlyslow.  Easeofuse  Otherthantheactualfeaturesavailable,themostimportantfactorwhenchoosingGASis theeaseofuse.Thisisoftencitedasbeingthebiggestbarriertoentryforauditfirms (and IAdepartments).Evenworsethanthis,Ioftenspeaktocompanieswhohavespenttensor hundredsofthousandsofdollarsonsoftwarefortheirstaff,onlytofindthatit’ssocomplex thatmostoftheirstaffdon’tactuallyuseit!  WhilstACLandIDEAhavebothgoteasiertouseoverthelastfewyears,there’sstillquitea steeplearningcurvewiththemboth.Bothmanufacturersrecommendmulti‐daytraining courses,andlessITliteratestaffoftenstruggletotakeitallin.OntheotherhandActiveData andTopCAATsarefarsimplertouse.BothruncompletelywithinExcel–anenvironment thatjustabouteveryauditorisalreadyfamiliarwith. 5   TopCAATshastakeneaseofusetotheabsoluteextreme,andreallyisaboutaseasytouse aspossible!Theuniquecolorcodedinputboxes(inputsarerediftheymissingorcontain invaliddata,andgreeniftheycontainvaliddata),simpleintuitiveuserformsandinbuilt help,resultinminimal(ifany)trainingrequirements.  ActiveDataandTopCAATsalsoincludeanumberofmoregeneraltoolswhichenhance Excel’snativefunctionalityandmakelifealittleeasier(forexampletheTopCAATstoolbaror ActiveData’sworkbookfunctions).TopCAATsalsohasan“EngagementDetails”function thatallowsyoutostoreinformationabouttheclientyou’recurrentlyworkingon,soyou don’thavetokeepenteringthesameinformationoverandoveragain.  Training  Alltheproductslistedhavetrainingnotonlyintheirfunctionalitybutalsoinhowtheycan beusedinafrauddetectionscenario.Thesoftwarevendorsorindependentfirmsusingthe softwarehaveproducedavarietyofself‐study,group‐study(sometimesincludingonline tutorials),andprivateinstructioncourses.Formoreinformation,pleaseseetheACFE’s bookstoreatCFEnet.comorthesoftwarevendorWebsitesfornumeroustrainingoptions. Allvendorshavemailinglistcommunitiesand/orforumstohelpconnectusersoftheir productstodiscusspracticalapplicationscenarios.  Youshouldalsoconsidertheamountoftrainingrequiredtoequipyourstaffwiththe necessaryskillstousethesoftwareeffectively.There’snopointinspendingmoneyon softwareifyouaren’tpreparedtoinvestintrainingthestaffhowtouseit.Thetraining requirementsofActiveDataandTopCAATsarerelativelyminimalastheyleveragethe familiarExcelenvironment,andareslightlymoregearedupforeverydayusebythemasses. ACLandIDEAaremorespecialistproductsandtendtohavehighertrainingneeds.  Dataimportconsiderations  Ofcourse,anotherofthedifficultiesinusingGASisgettingthedataintothesoftware,and gettingitinasuitableformat.Allproductsprovidea“wizard”thatwillassistinanalyzingthe followingfiletypes:Excel,Access,Dbase,Delimited,andFixed‐Width.Thewizardwilldo mostoftheworkinensuringdataofthesetypesisimportedcorrectlyand,forthemost part,thisfunctionisallthat’sneededformostexaminationsprovidedthatmostclient systemswillbeabletoexportdatainanASCIIformatandinoneofthesecommonfile types.Someoldercomputersystemsmayonlybeabletoprovidedatainamainframe format(suchasIBM’sEBCIDICformat)andforthesespecialinstances,ACL™andIDEAare theonlytoolsinoursoftwarelineupyoucanusetonativelyreadthesefiles  AlltheproductsalsoallowOpenDatabaseConnectivity(ODBC)whichisthestandard databaseaccessmethoddevelopedbyMicrosoftandadoptedbymostaccountingpackages totransferdatabetweensystems  6  ACLandIDEAalsosupporttheimportingofprintfiles,allowingyoutoeasilydefinethe fieldsandstripouttheheaders.WhilstthiscansometimesbeachievedinExcel,itisoftena fairlymanualtaskandcanleadtopoordataintegrity.Thereareadditionalproductsthatcan beusedtoimportprintfilestoExcel,suchasImportWizard (http://www.beside.com/download.html)  However,inrealitymostmodernaccountingpackagesanddatabasescanexporttoeither .xlsor.csvsotheseadditionalimportfunctionsarerarelyused.Furthermore,it’soften easiertogetreportsinExcelformat,asthisiswhattheaccountingdepartmentattheclient usetoruntheirbusiness!  HowtoselectapackageTestdrive  WhenI’minthemarketforacar,Imayliketheappearanceandlookofaparticularvehicle. AndthenI’lllooktoseehowmanycarsofthatmodelIseeontheroad.ButIfinallybasemy decisiononhowthecarfeels.AlmostanycarwillgetmefrompointAtoBandwillprovide similarfunctions.Shoppingforfraudinterrogationsoftwareissimilar.Someofthebellsand whistlesmayberequirementsforaminorityofusers,butthecorefunctionalityand usabilityseemstobewhatmostpeoplewantonadailybasis.Mybestsuggestionistotake atestdrive:obtaindemoversionsofthesoftwarepackages(trialsofbothActiveDataand TopCAATscanbedownloadedfromtheirrespectivewebsites),andrunthesamereport througheachproduct.Youcandeterminewhichproductfeelsbest.Talktothecompany representatives,thehelpdesk,andotheruserstohelpformyouropinion.  Summary  WhenchoosingGeneralizedAuditSoftware,therearemanyissuestoconsider:dataanalysis features,easeofuse,cost,importrequirements,etc.Beforerushingoutandpurchasing expensivesoftwareforthewholedepartment,startsmallandbeginusingsomeofthese techniquesonafewofyourengagementstoassessyourneeds.  AlltoooftenIseecompaniesinvesttensofthousandsofdollarspurchasingand implementingfraudinterrogationsoftwareonlytoshelveitforacoupleofmonthsandhita brickwall whentheywenttouseitagainbecausetheyhadforgottenmostofwhattheyhad learned.  AsActiveDataandTopCAATsintegratesowellwithExcel,theytendtobeusedonamuch moreregularbasis,andthisdecayofknowledgeovertimeismuchlessprofound.  Ihope I’vehelpedtodispelthemythsthatauditsoftwareisdifficultandexpensive,and movedyouclosertousingproactivedataanalysistechniquesonsomeofyour engagements.