ABSTRACT Computer assisted audit techniques, known for short as CAATs are tools and systems formed by the information technology transformation.. For performing audit procedures, CAATs h
INTRODUCTION
Purposes of chosen topic
Over the past two decades, auditors have witnessed significant technological advancements, particularly in information technology, which has led to automation and improved communication systems These developments have not only enhanced security but also streamlined correspondence between individuals and businesses As a result, the accounting and auditing sectors have benefited greatly, with the adoption of Computer Assisted Audit Techniques (CAATs) enabling auditors to automate previously manual processes, thereby saving time and increasing efficiency in audit procedures.
Despite the long-standing advancement of Computer-Assisted Audit Tools (CAATs), their comprehensive integration into university curricula remains limited due to the vastness of the subject, which is primarily oriented towards practical application Major professional services firms are increasingly utilizing CAATs as essential auditing support tools, enabling auditors to conduct thorough data processing and make informed judgments This graduation thesis, derived from my internship report titled "Use of Computer Assisted Audit Tools and Techniques by PricewaterhouseCoopers Vietnam Limited Company," aims to illustrate the practical application of CAATs while enhancing the understanding of these tools both in theory and practice.
Thesis objectives
There are two objectives of the graduation thesis trying to resolve:
• Depiction of CAATs used by PricewaterhouseCoopers (PwC)
• Analysis of CAATs, comment on any strength or drawback witnessed and recommend any improvement for CAATs operation of PwC.
Research methodology
The graduation thesis is implemented by using these research methods:
The qualitative method involves investigating the theoretical foundations of a chosen topic by gathering and analyzing non-numerical data, including previous research papers and articles This approach aims to provide in-depth insights, culminating in a concise abstract that summarizes the theories explored, experiences recalled, explanations derived, conclusions reached, and recommendations proposed.
• Observation method: observe procedures and carry out procedures with instructions for CAATs in practice at the company
• Information collecting method: obtain available information and data during performing procedures for CAATs, understand instructions and policies required to use CAATs at the working company
• Interview method: inquire and discuss with experienced auditors and of the company.
Scope of study
This graduation thesis primarily focuses to the extent of operations of PwC in Vietnam area and for the ending year of 2020.
Disposition
Except for the abstract and introduction of the graduation thesis, the main content comprises of three chapters which are:
• Chapter 1: Literature review – definition of CAATs and overview of PwC
• Chapter 2: Use of CAATs by PwC – illustration, explanation, and analysis
• Chapter 3: Conclusion and recommendation on CAATs renovation for PwC.
CHAPTER 1: LITERATURE REVIEW
Theoretical basis
Auditing serves as an independent assessment of an entity's financial statements, providing a credible opinion on their reliability It caters to various stakeholders, including individuals and organizations, who rely on accurate financial information for investment, financing, or divestment decisions Additionally, audit services benefit the managers and owners of the entity by offering valuable recommendations for enhancing financial statement preparation, ensuring compliance with laws and regulations, and improving the effectiveness of internal control systems.
To generate an audit opinion, independent practitioners, typically professional services firms, must follow a structured audit process consisting of six key stages First, auditors gain an understanding of the client's business activities and profile Next, they develop a detailed audit plan and strategy, outlining the nature, timing, and extent of audit procedures while assigning tasks to team members The third stage involves fieldwork, where auditors collect sufficient and appropriate evidence Following this, auditors analyze the evidence, assessing its impact on the financial statements with professional skepticism If necessary, they apply professional judgment in accordance with relevant standards and regulations Finally, auditors draw reasonable conclusions based on the evidence gathered, which are documented in the audit report.
In the medieval era, manual bookkeeping was prevalent, and auditors in Western countries focused on listening to accounts read aloud to identify any misstatements or fraud (Redmayne, 2007) Moyer (1951) emphasized that detecting fraud was the primary responsibility of auditors As highlighted by Johnson (1975), early auditing in the United States primarily involved verifying bookkeeping details With the growth of companies and organizations, auditors were required to implement more extensive procedures and gather sufficient evidence to support their audit opinions, leading to an increase in the documentation of audit processes.
Since the 1990s, technology has significantly transformed various professions, leading to a shift towards paperless operations Companies now utilize electronic workpapers stored in cloud systems, allowing authorized personnel easy access and the ability to update documents for different purposes This evolution has prompted professional services, particularly auditing firms, to adapt their computerized systems to enhance automation in audit processes Research by Venkatesh et al (2003) highlights that information technology enhances work performance, while Bierstaker et al (2014) emphasize that the use of IT tools varies among larger auditing firms based on their scale and specific audit methodologies tailored to clients with complex financial reporting systems.
Computer Assisted Audit Techniques (CAATs) are increasingly recognized and encouraged by auditing standards and specialists in the field of information technology CAATs automate various processes within the information technology audit profession, making them a vital component of modern auditing practices Research by Janvrin, Lowe, and Bierstaker (2008) indicates that large accounting firms, including Deloitte, PricewaterhouseCoopers, Ernst & Young, KPMG, BDO, and Grant Thornton, have widely adopted generalized audit software The integration of information technology into accounting practices has been evident since the 1980s, highlighting its significance in the global work environment.
CAATs are explained broadly by Handoko, B L., Lindawati, A S L., and Mustapha,
Computer-Assisted Audit Techniques (CAATs) are essential tools employed by auditors to evaluate the effectiveness of information technology applications in data processing These techniques facilitate the assessment of fraud risk, identification of journal entries, detection of anomalies, and re-performance of procedures Additionally, CAATs enable auditors to examine the accuracy of electronic files and implement various sampling methods for testing and recalculating data.
In the early twenty-first century, numerous studies on Computer-Assisted Audit Techniques (CAATs) highlighted mixed perceptions among auditors Braun & Davis (2003) found that while auditors recognized the potential benefits of using Audit Command Language, they lacked confidence in their technical skills to effectively implement it Similarly, Debreceny et al (2005) discovered that internal auditors in Singapore were hesitant to integrate CAATs into their routine practices, using them only for specific scrutiny occasions External auditors also expressed reluctance, arguing that CAATs were unsuitable for testing financial statement assertions and evaluating computerized internal controls Liang et al (2001) further noted a general dismissal of CAATs in regular audit work, indicating that many auditors struggled to embrace new technology and preferred traditional auditing methods.
D J., & Bierstaker, J (2008) had done another research and came to conclusion that auditing firms might need to facilitating conditions, namely relevant training programs, audit guidance and adequate support, proper technical infrastructure, for auditors to encourage them adopt CAATs as their basic usage
The increasing familiarity of audit practitioners with Computer-Assisted Audit Techniques (CAATs) highlights their essential role in the auditing process, particularly during peak seasons from late December to March, as noted by Pradana and Salehudin (2015) CAATs significantly enhance auditors' productivity and efficiency by enabling timely and automated workflows, thereby saving valuable time and providing critical data for analysis, as emphasized by Handoko, Ariyanto, and Warganegara (2018).
Overview of PricewaterhouseCoopers
PricewaterhouseCoopers, shortened as PwC since 2010, is a network of multinational limited liability partnerships in professional services industry
PwC was formed in 1998 through the merger of two prominent accounting firms, Price Waterhouse and Coopers & Lybrand Coopers & Lybrand traces its origins back to Cooper Brothers, founded in 1854 by Sir William Cooper in London, and Lybrand, Ross Brothers and Montgomery, established in the late 1890s in the United States In 1973, Cooper Brothers and Lybrand merged with the Canadian firm McDonald, Currie and Co to become Coopers & Lybrand Meanwhile, Samuel Lowell Price founded an accountancy firm in London in 1849, which evolved into Price, Waterhouse & Co in 1874 after a partnership with William Hopkins Holyland and Edwin Waterhouse.
PwC, a leading global professional services network, operates in 155 countries with 800 offices and employs over 284,000 professionals Headquartered in London, England, the firm is chaired by Robert Moritz.
PwC Vietnam, officially known as PwC (Vietnam) Limited, is a member of PricewaterhouseCoopers International Limited, a private company governed by English law Each member operates as a separate legal entity, ensuring financial and legal independence while adhering to local regulations Despite this independence, PwC member firms collaborate to share knowledge, experience, and technology, enhancing service quality and bolstering the PwC brand Established in 1994, PwC Vietnam has offices in Hanoi and Ho Chi Minh City, employing over 1,000 local and expatriate professionals across various service categories.
PwC aims to build trust in society and address significant challenges while aspiring to be the leading professional services firm globally With a network of technology-driven innovators, PwC is dedicated to enhancing client services through strategic execution that promotes transparency, trust, and integrity in professional practices The firm emphasizes core values such as acting with integrity, making a difference, caring, collaborating, and reimagining possibilities to empower its managers and employees Additionally, PwC's Code of Conduct highlights its commitment to corporate responsibility, diversity and inclusion, community engagement, and environmental stewardship.
PwC's global prestige as a leading professional services organization is on the rise, particularly among foreign invested enterprises and credit institutions To sustain and enhance client trust while bolstering brand credibility, PwC actively seeks to engage with a broader range of audit clients by implementing robust policies.
• Take into careful consideration and selection of clients PwC chooses and tenders for those clients that have potentiality and good moral philosophy
• PwC is striving for enhancement of services offered to the complete satisfaction of the audit clients
Human capital is a crucial element for business success, which is why PwC prioritizes training programs and skill enhancement for employees at all levels, from entry-level staff to senior management.
PwC Vietnam operates as a limited company, officially named PwC (Vietnam) Limited Company As per its annual report dated June 30, 2020, the management structure of PwC has received formal approval.
• Board of Members: The President and two other members including the General Director
• Board of Management: General Director and twenty-one Deputy General Directors for operation and specialty management
PwC Vietnam has its registered office located in Hanoi which is the capital of Vietnam The head of Vietnam branch is the General Director, Mrs Dinh Thi Quynh Van
Renowned accounting firms typically feature a hierarchical structure, starting with Partners at the top, followed by Directors, Team Managers, Senior Associates, and Associates, often including Supervisors or Assistant Managers PwC outlines its hierarchy specifically for its Audit and Assurance services, where General Directors and Deputy General Directors serve as Partners and heads of each service line Below them are Directors, while Team Managers are categorized into Senior Managers and Managers based on seniority Supervisors or Assistant Managers oversee subgroups within larger audit engagements, with Supervisors being Senior Associates with over three years of experience Senior Associates are ranked from level 3, the lowest, to Senior Associate 1, the highest, while Associates 1 and 2 are newer employees with one to two years of experience, respectively.
Each client is supported by an engagement team led by an engagement leader, typically from the Director level or higher The team is managed by a Manager, with a Senior Manager overseeing operations based on the client's scale Key team members include Senior Associates and Associates, sometimes with the assistance of interns For large corporate engagements involving the main office and subsidiaries, the team may be divided into subgroups for each entity, with a Supervisor coordinating communication between these subgroups.
The organizational structure chart, for Audit and Assurance line, is illustrated as below:
Chart 1 Organizational chart at PwC Vietnam
PwC Vietnam delivers high-quality, industry-focused services through a team of skilled professionals Committed to client satisfaction, the firm fosters strong interpersonal relationships and deeply understands the unique needs of each business As a result, PwC Vietnam provides exceptional support across various service areas.
PwC offers a comprehensive range of Audit and Assurance services, including financial statement audits, financial information reviews, and agreed-upon procedures Their Risk Assurance services encompass internal audit, business controls advisory, IT risk assurance, performance assurance, business resilience, and corporate governance By leveraging extensive industry knowledge, PwC customizes audit approaches to meet the specific size and nature of each client, ensuring best practices are followed.
PwC's Deals services, a key component of its Advisory offerings, are designed to support clients in achieving their objectives through a robust network of relationships across Asia and globally These services encompass Transaction Services, Corporate Finance, Valuation Services, and Deals Strategy, ensuring comprehensive assistance tailored to meet diverse client needs.
President of Board of Members General Director Deputy General Directors
Assistant ManagersSenior AssociatesAssociates
Infrastructure, Government and Utilities; Business Restructuring services; and Working capital management
PwC's Consulting services, a key component of its Advisory offerings, deliver comprehensive solutions tailored to clients' diverse needs across various sectors These services encompass critical areas such as strategy development, cost and performance management, governance, risk and compliance, and forensic services Additionally, PwC addresses challenges in people and organizations, sustainability, media and telecommunications, growth markets, post-merger integration, finance function effectiveness, continuous audit and monitoring, information technology, operations, banking, and data and analytics, ensuring a holistic approach to risk management and response.
PwC Vietnam offers a comprehensive range of tax services tailored to meet the needs of clients in accordance with Vietnamese tax regulations Their core offerings include transfer pricing, tax dispute resolutions, corporate income tax compliance and reporting, customs and international trade, withholding taxes for foreign contractors, personal tax and payroll services, as well as restructuring and value chain transformation Additionally, they assist with acquisitions, disposals, and reorganizations, provide inbound services for doing business and investing in Vietnam, and offer global mobility services.
PwC offers extensive legal advisory services to clients across various sectors, including market entry, general corporate and commercial services, mergers and acquisitions, real estate, intellectual property and technology transfer, employment and human resources, as well as banking and financial services.
CHAPTER 2: USE OF COMPUTER ASSISTED AUDIT TECHNIQUES
Introduction to computer assisted audit techniques of PwC
The impact of information technology on audit procedures is significant, particularly through the use of computer-assisted audit techniques (CAATs), which automate audit processes to enhance efficiency and effectiveness Defined in the Global PwC Audit Guide, CAATs enable auditors to analyze large datasets, identify anomalies, and improve the accuracy of calculations—such as using Microsoft Excel's formula functions to verify supporting schedules This approach allows auditors to review entire populations of transactions and conduct targeted testing based on specific risks, utilizing tools like pivot tables and filtering functions By focusing on items exceeding performance materiality rather than relying on random sampling, CAATs facilitate a more strategic audit process, often involving collaboration with Data Management and Risk Assurance teams as the complexity of the audit increases.
The utilization of detailed electronic entity data, such as account-level transaction and standing data, enhances PwC's audit processes through the application of Computer-Assisted Audit Techniques (CAATs) While detailed electronic data is valuable, it is crucial to recognize that it alone may not yield adequate audit evidence; corroborative evidence is essential to substantiate analyses based on identified risks and relevant assertions CAATs facilitate comprehensive testing of electronic transactions and account files, allowing auditors to adjust testing scope in response to fraud-related material misstatement risks These techniques enable the selection of sample transactions from key electronic files, sorting transactions by specific characteristics, or testing entire populations Additionally, CAATs bolster control testing by enabling auditors to examine a small selection of transactions within the system or by creating integrated test facilities that process transactions, thereby providing evidence for every transaction in master or transaction files to identify any control failures.
PwC (Vietnam) Limited's Ho Chi Minh branch employs a range of advanced Computer-Assisted Audit Techniques (CAATs) utilized by auditors at all levels, from associates to managers and beyond The diverse array of CAATs in use highlights the firm's commitment to enhancing audit efficiency and effectiveness.
Microsoft Excel and Google Sheets serve as essential tools for PwC staff, enabling them to recalculate schedules, verify client calculations, document their work, conduct data analysis, and compare current figures with previous ones These platforms also facilitate performance tracking and team reviews, ensuring efficiency and accuracy in their operations.
Scanning analytics can be conducted both manually and through Computer-Assisted Audit Techniques (CAATs), utilizing software like Audit Command Language or Excel for tasks such as filtering, identifying duplicates, and sorting data Experts play a crucial role in developing and implementing these advanced CAATs All audit procedures are meticulously documented within the Aura Platinum system of PwC, ensuring comprehensive record-keeping.
PwC iCore KiSS, which stands for PwC iCore Keep it Short and Simple, is a tool that utilizes various macro settings in Microsoft Excel through Visual Basic for Applications (VBA) programming Developed by Microsoft, VBA enables automation of tasks and enhances functionality beyond basic spreadsheet creation and organization The concept of iCore originated in the 2010s, initiated by auditors at PwC.
The Ho Chi Minh City Branch implemented pilot programs for iCore, which integrates macro settings for Microsoft Excel and Word This innovative tool assists auditors in efficiently preparing reports and making necessary adjustments or corrections.
In substantive testing, Computer-Assisted Audit Techniques (CAATs) are essential tools that enhance auditors' ability to access comprehensive data populations, enabling improved risk-based targeting and the possibility of testing entire data sets rather than relying solely on sampling Auditors can utilize CAATs to independently verify calculations made by the entity, while also ensuring adequate substantive testing on all relevant inputs involved in these calculations This approach encompasses various testing methods, including targeted testing, the two-step revenue approach, non-statistical sampling, and accept-reject testing.
GL Revenue is a digital application designed to categorize revenue journal entries for relevant accounts based on their adherence to expected journal entry flows This categorization assists the engagement team in stratifying journal populations into lower and higher risk categories, which is essential for developing an effective revenue testing strategy The application is best utilized when the revenue recognition process is straightforward, with minimal audit adjustment history and no specific fraud risks beyond the assumed risk of fraud Additionally, GL Revenue relies on the Halo for Journals data extraction process and is only applicable to engagements that also utilize Halo for Journals.
Halo for Journals assists PwC staff in pinpointing journal entries for testing that correspond with their established fraud risk criteria, enabling auditors to detect higher-risk transactions and process inefficiencies effectively.
Electronic access to journal entry data enhances PwC's engagement team's understanding of the journal entry population, enabling more effective targeted testing of high-risk sub-populations or samples for potential fraud This innovative tool is integrated within GL Revenue.
In addition to the previously mentioned CAATs, PwC's audit and digital IQ team focuses on "citizen-led innovation" by developing exceptional digital tools and resources These innovations are designed to equip auditors with essential digital upskills and practical applications for their work The team has introduced four standout technologies: Aura, Halo, Connect, and Extract, which enhance the auditing process and empower professionals in the field.
Description and illustration
PwC utilizes the Aura Platinum system, a cloud-based engine that enhances the quality and consistency of audits through a risk-based approach This global Enterprise Resource Planning (ERP) system is implemented in every PwC audit, both locally and internationally Access to Aura, where electronic working papers are securely stored, is granted to engagement team members by the engagement manager, ensuring streamlined collaboration and efficiency in the auditing process.
Illustration 1 Depiction of Aura Platinum interface in the Executive view
Aura's Execute view features various Evidence Gathering Activities (EGAs) in Microsoft Excel format, facilitating auditors in documenting and reviewing their working papers through the PwC network from any location with internet access The platform meticulously tracks all activity and adjustments, requiring engagement team members to upload scanned documents such as bank confirmations, contracts, engagement letters, and auditor reports Meanwhile, the Plan view is primarily utilized by managers and engagement leaders to assess risks during the audit planning phase, allowing for manual input or automatic updates of prior year's client data Essential client information includes the legal company name, subsidiaries, business sectors, and specific year-end or period-end dates.
In Completion view, engagement auditors must document their final analytical procedures before concluding the audit opinion for the auditor’s report They should note any points for the audit client to acknowledge and consider events occurring after the fiscal year reporting period Each team member is responsible for completing their assigned EGAs and addressing any sections of the Aura, responding to queries in Microsoft Excel, and marking them as “Mark Prepared.” The senior in charge and engagement managers will then review the working papers provided by the team, creating Coaching Notes for necessary adjustments or additional documentation Team members must adhere to the guidance in these Coaching Notes, after which the reviewers will reassess the work If the revisions meet the required standards, they will be marked as “Mark Reviewed.”
The Document Library view within the Aura platform efficiently stores digital copies of audit documents, providing auditors with easy access to link addresses for their working papers, which streamlines the review process and enhances the authenticity verification of these documents This method significantly reduces the file size of Microsoft Excel, alleviating the burden of storing heavy files filled with images or illustrations Additionally, the Supplemental views include a Recycle Bin for deleted documents and exclusive access for upper-level managers and engagement leaders With over 100,000 auditors utilizing the Aura platform across the PwC network, it promotes quality and consistency in audit practices while ensuring that engagement teams adopt a focused and efficient approach to audit risk management.
• A better understanding of clients’ business due to end-to-end visibility of the audit process enabling consistency, synergy and scale
• A greater focus on the things that matter thanks to a systematic risk-based approach
PwC’s pre-loaded risk software empowers teams to effectively identify relevant risks and take appropriate actions to mitigate them By utilizing workflow technology, it ensures timely execution and thorough review of work by assigning audit procedures and individual tasks on customized dashboards for each team member.
PwC ensures consistent and high-quality audit delivery across its extensive client base through a collaborative workshare feature This innovative tool is specifically designed for service centers and multilocation audits, enabling auditors to work together efficiently and eliminate duplication of efforts.
• Real-time monitoring of engagement quality and progress is available securely on mobile devices, anytime, anywhere
PwC has introduced a global coordination tool called Connect, alongside the Aura Platinum platform, to facilitate fast, efficient, and secure information sharing during audits Described by PwC as a solution that "streamlines, standardizes, and automates real-time communication," Connect allows audit clients to access the platform with a secure account and password Clients receive email notifications whenever the engagement team requests data, eliminating the limitations of traditional email exchanges With over 9 million requests processed across 87,000 instances of Connect within the PwC network, this tool significantly reduces disruptions in data sharing during audits.
Enhance your information exchange and document management with a secure, web-based tool Connect allows team members to request, access, and share audit documents and deliverables while securely reviewing the status of data inquiries.
• Process efficiencies through consolidation and automation of notifications Up and coming events and deadlines are notified to all team members as well as audit clients
Effective communication between engagement teams and clients is crucial for addressing audit-related issues By utilizing the Connect communication platform, both PwC staff and audit clients can consolidate important information on general dashboards This secure system allows for progress tracking and issue resolution, ensuring that only authorized personnel access the necessary data through secure password protection.
This globally accessible system is designed for audit teams and clients of all sizes, allowing them to securely access and view relevant data and information from their location Its scalable nature ensures that both small and large-scale clients can benefit from its features, enhancing collaboration and efficiency across the board.
The Connect tool streamlines document management for audit clients, significantly reducing effort while serving as a gateway to PwC's expertise It provides clients with access to valuable thought leadership and the latest industry news.
• Fast and efficient issue resolution due to real-time tracking The personalized dashboard allows clients and engagement teams to track status at an overall engagement and individual level
PwC has developed a groundbreaking data auditing technology called Halo, designed to transform the audit process by harnessing the power of data for enhanced assurance and insights This innovative tool scans extensive volumes of core business data, revealing crucial financial and operational insights while automating manual tasks and enabling advanced risk assessments Halo interrogates all transactions using built-in algorithms, producing content-themed visualizations, detailed data schedules, and benchmarking capabilities It seamlessly integrates with any commercial accounting system and is accessible year-round, even off-site Additionally, PwC's specialized team has created various Halo applications tailored to meet the unique demands of different industries and risks.
Halo for Journals enables the identification of unexpected journal entries, allowing for the assessment of their impact on key accounts It also helps in monitoring the finance department's personnel who are not directly involved in posting journals, while effectively identifying duplicate or reversed entries.
As a record, more than one billion records can be processed in each instance of PwC’s Halo for Journals application
• Halo for ERP: end-to-end solver with data extraction tool to automate audit testing
• Halo Performance Analyzer: undertaking the analysis of key indicators and drivers of business performance to assess risk, highlight patterns, unveil trend and ratio analysis, insights and outliers
• Halo for Investments: resolve client’s investment portfolios using higher-quality, more extensive data sources
• Halo for Mid-tier: tailored data auditing tool for clients using smaller ERP systems
Extract is a suite of extraction programs designed to standardize how PwC auditors communicate document requests and securely transfer client data Developed by PwC’s audit and digital IQ team, this tool aims to create a more efficient data acquisition process According to a PwC survey, approximately 75% of eligible audit clients have already adopted the automated extraction approach Key benefits of Extract include enhanced efficiency and improved data handling.
The suite allows engagement teams to efficiently extract large volumes of data with minimal disruption to clients' accounting systems By securely ingesting client data just once, teams can utilize this information consistently throughout the audit process, ultimately aiding in reaching accurate audit conclusions.
• Keeping the standard data formats which automates prompt transformation ready for analysis Even on non-standard systems, this easy-to-use instrument can help to accelerate the data absorption
• Excluding the requirement for repeated, manual manpower interference during the data extraction process as the tool is operated to be smart and streamlined
Explanation and documentation
During the work period, various sections are executed using relevant Computer-Assisted Audit Techniques (CAATs), primarily for substantive testing, which focuses on detailed examination Each section performed is illustrated as follows:
In the cash section, a detailed test of cash at bank is conducted, focusing on 100% of the population through targeted testing The primary objectives are to document the tests performed and to obtain confirmations for the client's bank accounts PwC mandates a comprehensive examination of the entire population for cash at bank testing During the process of obtaining bank confirmations, the auditor must reconcile these confirmations with the trial balance and the general ledger maintained by the client in the cash count minutes If discrepancies arise, the auditor is required to investigate with both the client and the bank to determine whether further testing is necessary or if the differences are immaterial, in which case they should be documented in the work files.
The accounts receivable section involves two key tests: the confirmation of account receivables and prepayments to suppliers, and the reliability of the account receivable aging report The first test employs a combination of non-statistical sampling and targeted testing, focusing on account receivable balances that exceed ten percent of the total population Balances below this threshold will undergo non-statistical sampling This process enables the engagement team to send confirmations to customers and vendors regarding account receivables and prepayments The second test assesses the reliability of the receivables classification based on their due dates, utilizing accept-reject testing Auditors will gather invoices and supporting documents related to selected testing items to reconcile with the recorded account receivable aging report, verifying the accuracy of invoice dates and due dates.
In the accounts payable section, auditors must conduct two detailed tests for account payable and customer advance confirmations, utilizing a combination of targeted testing and non-statistical sampling If no individual account payable or customer advance balance exceeds ten percent of the total population, non-statistical sampling becomes essential After sending confirmations to selected vendors and customers, auditors reconcile the responses with detailed account listings and document any discrepancies identified.
Auditors are required to perform targeted testing for intercompany confirmations, documenting 100% of the intercompany population, including related transactions and year-end balances Due to the time involved in obtaining hard copy confirmations, scanned copies with authorized signatures and company stamps are deemed acceptable.
In PwC's borrowing section, the engagement team must document two key tests: the targeted testing of withdrawal amounts and a non-statistical sampling test for borrowing payments The population
In the share capital section, the engagement team conducts targeted tests, including the capital contribution test and the dividend payment test, to ensure accuracy across the entire population They obtain confirmations and reconcile these with journal entries related to dividend payments, as well as with business and investment registration certificates Any discrepancies identified must be discussed with the client, as this section is crucial for compliance and financial integrity.
The operating expenses section includes two detailed tests: selling expenses and general administrative expenses These tests utilize non-statistical sampling, focusing on the entire population of journal entries recorded in the general ledger for each category The auditor subsequently requests all supporting documentation from the client for the selected journal entries.
In the payroll section of salary expenses, four key tests of details are performed to ensure accuracy The first test involves non-statistical sampling of payroll payments, which are reconciled with payment vouchers or invoices The second test is an accept-reject analysis of new joiners, where the auditor verifies selected samples against the monthly payroll sheet Similarly, the third test focuses on leavers, employing an accept-reject method to confirm their records Finally, targeted testing is conducted on net take-home payments, where specific items from the general ledger are cross-checked with supporting documents provided by the client.
At the planning stage, engagement managers and leaders often note a low desired level of evidence for clients, indicating minimal risk in specific testing areas Consequently, this low evidence requirement necessitates testing only a small number of items Auditors typically employ a haphazard selection method, choosing items deemed representative of the entire population While this approach may introduce bias, it is considered acceptable in the context of non-statistical sampling.
Analysis
In summary, CAATs are used by PwC’s auditors for two main purposes:
During audit engagements, advanced tools play a crucial role in enhancing the audit process Key tools include Aura and iCore, which streamline various audit activities Essential substantive testing methods such as targeted testing, non-statistical sampling, accept-reject testing, and the two-step revenue approach are employed to ensure accuracy Additionally, GL Revenue, Halo, and journal entry testing are integral components that further strengthen the audit's effectiveness.
• For general tools such as system, suite to aid which are applied voluntarily depending to the audit clients’ accounting systems: Connect, Extract
There are some of potential uses of CAATs in the audit process such as:
• In tests of controls, CAATs can help the auditors perform walk-through procedures of selected transactions or implement combined test for them
• In substantive testing, CAATs are commonly used in executing audit procedures over journal entries and revenue transactions
• To assist in fraud detection, CAATs enables the staff to sort through large volumes of data
• To select number of testing items, CAATs make it easier for the auditor to select the number of items for the test as the desired level of evidence
• To create spreadsheet for the auditor’s report publication and summary of any adjustments made during the audit process
There are also some noticeable considerations regarding the use of detailed electronic entity data when performing CAATs:
Auditors must evaluate the quality and accessibility of data during the planning phase of Computer-Assisted Audit Techniques (CAATs) Gaining insight into the available data types, as well as understanding the information systems and business processes relevant to financial reporting, is essential It is crucial for auditors to ensure that high-quality data is available in a format that is easily accessible for effective utilization.
To ensure a thorough analysis, staff must retrieve detailed electronic data from the entity's system and import it into the designated work file or vendor tool It is essential to uphold the integrity and security of the entity's information during the extraction and storage of electronic data.
During the initial data retrieval process, the engagement team conducts an assessment to identify the necessary data, potentially involving a data management specialist The specific data requirements vary based on the audit objectives and the coverage period Once finalized, a formal data request is sent to the entity's IT department, outlining expectations regarding data format, transfer method, and timing Team members must document the data extraction process to ensure the completeness and accuracy of the selected fields for the audit.
After the initial year, teams can use the previous year's data request as a foundation, adjusting it to reflect any changes in their planned procedures following team discussions and assessments of system or process modifications When submitting the updated data request, it is beneficial to include sample files and extraction scripts from the prior year to aid the information technology department in efficiently processing the request.
To ensure timely analysis during an audit, data requests must be made well in advance, allowing sufficient time for the auditor to address potential data retrieval challenges, including issues related to quality, completeness, and accuracy.
Data is typically collected in specific formats, but alternative formats may be viable depending on the application and analysis tools used Local data management or risk assurance specialists can assist teams in determining the most suitable tools for their needs, ensuring data is obtained in an appropriate format, and facilitating any necessary conversions.
• Data can be obtained using other mobile storage devices (USB storage) Large files can be compressed using an application such as WinZip or WinRAR
Data must be securely stored on PwC servers in a centralized location, with access limited to the designated engagement team and following predefined naming conventions It is essential to review local regulations and guidelines for any additional security and privacy requirements Furthermore, the engagement team is responsible for retaining the data post-audit period in compliance with PwC Audit standards and relevant local regulations.
When requesting data, it is essential to clearly communicate the intentions and reasons to the relevant entity If the data is transferred through alternative communication methods, such as email or other transfer tools, auditors must ensure that small data files are adequately encrypted and password protected to maintain security.
To ensure the effectiveness of Computer-Assisted Audit Techniques (CAAT), it is crucial to verify the completeness and accuracy of the data obtained Unlike the objectives related to financial statement line items, the focus here is to confirm that the data reflects what has been accurately recorded by the entity Assurance regarding the data's completeness and accuracy can be achieved through either tests of controls or substantive testing methods.
Once auditors have assessed the completeness and accuracy of the obtained data, they can leverage computerized software tools to conduct Computer-Assisted Audit Techniques (CAATs) These techniques enable auditors to structure, sort, analyze, and disaggregate entity data effectively Potential CAAT applications include generating reports or queries tailored to anticipated data usage, breaking down transactions by source while connecting them to the entity's processes and systems, and executing relevant reports to identify conditions that may indicate control deficiencies or anomalies for targeted testing.
To ensure the effective execution of Computer-Assisted Audit Techniques (CAAT), team members must validate the output report against the original entity data that was previously tested for completeness and accuracy For instance, they should compare total customer cash receipts derived from the CAAT analysis with the assessed customer cash receipt data The CAAT will highlight transactions deemed unusual based on predefined criteria, which will be the primary focus for further testing due to their higher risk However, it is also essential to conduct substantive procedures on typical transactions to maintain a comprehensive audit approach.
PwC’s Audit Guide also sets out the required documentation when performing procedures using technology solutions in general and CAATs respectively:
The work's scope and purpose must be clearly defined, addressing any audit risks involved If the engagement involves an accounting or auditing expert, the core assurance team should collaborate with the specialist to ensure a thorough understanding and documentation of the audit process This includes discussing the testing scope, identifying the systems or data sources relevant to the audit, outlining specific procedures to be performed, and establishing coverage dates.
The completed work involved a comprehensive assessment of the procedures undertaken to ensure the completeness and accuracy of the information utilized This included detailing the nature, timing, extent, and outcomes of the tests conducted, along with any exceptions noted The auditors meticulously reviewed the work performed, documenting the dates of these evaluations Additionally, the processes and logic applied to derive the results were outlined, alongside descriptions of the original entity files and data sources used A summary of the analysis and findings was provided, highlighting any necessary follow-up actions required by the core assurance team, particularly if the work involved specialists in accounting or auditing Lastly, any changes or additions to the original scope of the work were also noted, ensuring clarity and transparency throughout the auditing process.
Computer-Assisted Audit Techniques (CAATs) enhance auditors' decision-making regarding tests of details by automating the process with detailed electronic entity data, leading to increased efficiency These techniques enable a wider range of tests that are impractical in manual settings and allow auditors to analyze a larger set of transactions However, relying solely on CAATs does not yield sufficient audit evidence; auditors must also reference third-party evidence and seek additional corroborative information to substantiate their conclusions effectively.
CHAPTER 3: CONCLUSION AND RECOMMENDATION
PwC's study on the application of Computer-Assisted Audit Techniques (CAATs) highlights their effectiveness in mitigating fraud risks, particularly in the examination of journal entries and high-risk audit areas PwC has developed a variety of CAATs tailored for specific purposes, aiding auditors in determining the number of testing items needed and conducting substantive testing in targeted audit sections These tools enhance data visualization for analytical conclusions, streamline work processes by automating data extraction, and facilitate the preparation and updating of information for the auditor's report.
This graduation thesis explores the application of Computer-Assisted Audit Techniques (CAATs) by PwC auditors, drawing on theoretical insights from previous research and practical observations The findings include evaluations and recommendations aimed at enhancing the effectiveness and development of CAATs, ultimately improving audit processes at PwC.
Auditors begin the testing process by adding a test of details form for specific sections, but they must manually input the total population amount, which raises the risk of errors due to incorrect data entry or outdated figures To mitigate this issue, it is recommended that PwC integrate the test of details form into the documentation file for each section, ensuring that auditors have access to the most accurate and updated data.
PwC should consider releasing a comprehensive manual that guides users on how to conduct testing for each assertion and section This publication should also highlight essential features and notifications to be recognized before, during, and after the testing process.
PwC Audit Guide only gives a general information for the auditor to get at the first time using
Furthermore, PwC should consider the development for other selection methods, whereas the haphazard method which is manual selection of testing items, such as random and systematic via CAATs
PwC needs to enhance the iCore tool by improving the implementation of both Vietnamese and English versions of the auditor’s report Failure to follow guidelines for appropriate regional language adjustments can lead to incorrect disposal of the report Additionally, switching between English and Vietnamese for updated adjustments can be time-consuming, making it cumbersome for auditors to verify wording and representation in both versions.
To enhance convenience for auditors, the PwC development team should consider adding programs to the iCore suite that facilitate auditor report representation without altering language formats on their computers Currently, iCore only supports the preparation of auditor reports on an accrual basis; thus, there is a pressing need to develop functionality for cash basis auditor reports.
In spite of some limitations mentioned before, there is no doubt that CAATs have brought a lot of advantages that help the auditors perform work during the audit engagement
Computer-Assisted Audit Techniques (CAATs) are continuously evolving alongside technological advancements, raising concerns about the potential replacement of auditors by technology However, the need for human professionals remains essential due to the necessity of professional judgment, skepticism, and critical thinking in auditing Currently, CAATs play a crucial role in every phase of the audit process, aiding in data collection, information processing, audit procedures, analysis, documentation, and report generation To ensure high-quality audit outcomes, it is vital that CAATs are regularly updated and improved.
PwC Vietnam has over 25 years of experience in the industry, establishing a strong reputation among audit clients as a leading accounting firm The company is known for its diverse range of exceptional services delivered by a dedicated and professional team The advancement of technology is driving PwC to enhance and expand its Computer-Assisted Audit Techniques (CAATs), positioning the firm to maintain its status as a global leader in professional services.
This graduation thesis aims to reflect the practical application of Computer-Assisted Audit Techniques (CAATs) at PwC Vietnam, drawing from internship experiences Acknowledging potential errors or limitations due to limited hands-on involvement at the firm, constructive feedback and suggestions for improvement are welcomed to enhance the quality of this paper.