UWCISA – Discussants Comments

UWCISA – Discussants Comments An Examination of Contextual Factors and Individual Characteristics Affecting Technology Implementation Decisions in Auditing Rob Rowe, KPMG

Motivation for the study • Explores reasons for the slow adoption of new technologies in public accounting firm audit engagements as well as potential solutions • Recognizes that impediments to technology use are different within public accounting versus other industries • This is very topical in practice as firms strive to: • Implement more efficient and effective auditing techniques • Empower and motivate auditors to perform IT-related audit techniques that once were primarily performed by specialists • Adapt their audit approach to the increasing complexity of client IT environments

Motivation for the study (Cont’d) • “New Technologies” covers a lot of ground, not all of which is as important in the study context • Technology may be used for many parts of a financial statement audit • Communication via e-mail and electronic meeting rooms • Working paper automation • Work-flow automation • Decision support (e.g. automated logic tools to help determine the best audit approach) • Control Testing (e.g. segregation of duties) • Substantive testing • It is no longer true that user resistance to new technology is a “widespread problem” across professional fields as stated – today’s auditor is very technology savvy , and most audit tools are readily accepted • In practice only the last two are “optional” and relevant for this study as the others are mandated as standard practice

Motivation for the study (Cont’d) • In particular, use of monetary unit sampling is an optional technique that is proven to be a more efficient and effective method of sampling, which can only be performed using a CAAT • Within the body of the study there is a focus on optional use of CAATs for substantive testing, which is appropriate • It would have been beneficial to more narrowly state the types of technology and procedures at the start of the study

Theoretical Support • Accounting publications, Business related books, IT research studies, behavioral studies • Excludes the CICA Audit technique study on CAATs, recently updated, which covers many elements of this study

Theoretical Support (cont’d) • UTAUT model referenced • Three predictors: • Performance Expectancy • Effort Expectancy • Social Influence • Only the first and third are used in this study as they are the ones thought to be most impacted by the external audit context • Many in the “field” would say that the second predictor is the single largest predictor, but it is very true that these others are important - we still see cases where auditors do not implement very user friendly tools

Theoretical Support - Some reference sources are a bit dated and may not be relevant today, especially with respect to audit firm structures, environments and IT usage • Case study with a group of auditors – managers and in-charges • Although strongly statistically based, results in practice may not mirror those obtained within a training course • The case study in appendix 1 would not be a typical in practice • Auditors know of most tools to be used • Most tools are endorsed by senior management • Anomalous results (i.e. risk averse auditors being more likely to implement technology when budget pressure is applied) obtained that may not be seen in practice

Analysis of results • Performance expectancy and social influence affect technology acceptance in an audit context. • Auditors with shorter-term budget and evaluation periods will be less likely to implement technology • Budget seen as encouraging “dysfunctional” behavior • Auditors are more likely to implement technology when a remote superior favors implementation than when they have no knowledge of the superior’s preference. • Research study focused on managers and audit-in-charges • While the managers and audit-in-charges provided a “doer” perspective, the research study would have benefited from discussions with: • Engagement partners • CAAT Specialists

Analysis of results (cont’d) • Engagement partners play a key role in defining and approving the most appropriate audit approach and budget • Will include the budget for CAATs • At this point a deciding factor may be whether or not the engagement partner supports the use of CAATs on an audit

Analysis of results (cont’d) - All major firms have specialists that provide support in the development and execution of more complex CAATs for larger, more complex clients. • Since this team is highly trained, the cost of CAAT development for a specific engagement is reduced. • Similar CAAT logic can also be used for multiple engagements making the overall cost of implementation even lower. • E.g. confirmation of accounts for investment brokers. • These specialists are sometime underutilized on larger more complex engagements • The issue of when and how these specialists are inserted into the audit process is not addressed by this paper • However, it may be that the reasons why auditors don’t use CAAT specialists may be very similar to the reasons why they don’t use optional technology themselves. • E.g. risk aversion

Budgets – good or bad? • Budgeting is characterized in the study as unstructured, uncontrollable, causing dysfunctional behavior • Budgets serve legitimate purposes, should be reasonable and not encourage dysfunctional behavior • Should be structured and controllable • Should be allocated to audit areas based on audit risk • Should include a consideration of investments in current years to save time in subsequent years - an “extended budget evaluation period” • Many practitioners would say they do, in fact, consider an extended budget period, but their experience in prior years has showed that the savings are not realized in year two • In some cases these individuals have been “turned away” from using CAATs and need to be re-introduced to new technologies (this is difficult) • Since this is where much of the “budget pressure” is originating from, it would be valuable to understand the predictors of their acceptance of an extended budget horizon re: implementing CAATs

Cost of Audit Tools • In the study the cost of the audit tools and training is assumed to be optional based on the decision of the audit team • The study assumes engagements are charged a fee for use • In practice this does not always happen

Costs of Audit Tools in Practice • Costs of many types of audit software are “sunk costs”, and not borne by each engagement team/engagement • Each laptop used by the audit staff has CAAT tool installed. • Each auditor is also trained with the use of the tool as part of ‘core training’ • Cost of the tool installation is not charged to the engagement. • CAAT tool training provided, usually via eLearning, lowering costs even more • Auditor is only trained once, and it is relevant to many engagements

Costs of Audit Tools in Practice (cont’d) • Therefore CAAT tools and training cost not always a factor in implementation decisions • Advancements in sophistication of tools has also reduced training times • However - this makes this study all the more important • “if it is so easy then why are people still not using the tools?” • The applicability and value of certain interrogation tools on audit clients is still being researched

Study conclusions (cont’d) Study highlights some key learnings • Need for senior management support for CAAT use • Need for adequate budget to implement CAATs • In practice there is also a significant impact of the engagement partner supporting the use of CAATs on an engagement • It would have been interesting to explore an increased role of remote management in additional to “approval” - e.g. see the impact of • remote senior management directives to audit partners and managers to invest budget hours in CAAT implementation where prudent • allocating CAAT implementation time to each target engagement and in aggregate into audit group business plans accordingly

Study conclusions (cont’d) • The data that indicated risk averse auditors more readily use CAATS when under budget pressure is interesting and should be studied further • This finding may be due to the fact that risk averse auditors, in some cases, are not as adept in developing creative solutions during a crisis, therefore choosing to implement CAATS may be the only alternative they can think of • Or this could be caused by the fact that the study was during a training course when a risk averse auditor knew they would not have to follow through • Should be careful not to suggest that all firms should increase budget pressure for shy auditors! 

Study conclusions (cont’d) • Study excludes consideration of the impact of the need to motivate and coordinate with the client to identify and obtain the correct data files • This adds another organizational element to the implementation of audit tools • Maybe approach this with similar strategies ? • E.g. obtaining the support of remote client superiors

Study conclusions (cont’d) • Comment that data in the study “supports anecdotal evidence that auditors actually use very little audit software” seems extreme • The use of optional tools for substantive testing is less than ideal, but most of today’s audit is automated with very sophisticated tools.

UWCISA – Discussants Comments