Electronic Data Interchange (EDI) is when all transaction and document are created and
transmitted electronically between businesses. Full business process cycles can be performed and
completed without being recorded on paper. Purchase orders and Invoices are created on a
standardized digital platform and updates are processed against them electronically throughout
their life cycle. Image Processing Systems take paper document and convert them to digital
images. This is like a scanner that, in so many words, scans a picture of the document and stores it
as a digital image, like a PDF.
These forms of electronic data can be used by Auditors for audit evidence (Messier et al, 2017). As
the world move progressively into this digital age, I would believe that most of the Auditor’s
consideration of evidence would involve one or both forms of electronic data. Many companies in
today’s world do have green initiatives and work towards a paperless functioning office
environment. I have worked at companies that stringently limit the use of printers, and I have
worked at companies that take every single paper invoice coming in and scan it to a digital
platform. The company I worked for still filed and saved the paper invoice. However, as mentioned
in the Journal of accountancy, source documents may or may not be retainable after conversion
(Williamson, 1997). Auditors can use control to detect any alterations or fraudulent activities. EDI,
or electronic data interchange, is used to replace the physical and electronic transfer of
documents between business partners outside of their internal operating systems. Traditionally
information was sent physically or through an email and had to be received by an employee and
entered their system to produce a receipt or an invoice that was then returned to the original
company. This process takes time and involves the human element leaving both companies
susceptible to mistakes and/or misstatements. EDI allows the business partners to pass
information between the two company’s internal systems through a standard format. “The most
common documents exchanged via EDI are purchase orders, invoices, and advance ship notices.
But there are many, many others such as bill of lading, customs documents, inventory documents,
shipping status documents, and payment documents.” (Edibasics.com, 2021) Moving to a
computer-to-computer system allows companies to reduce costs and errors and increase their
business process speed. IPS, or image-processing systems, convert physical documents and files
into an electronic form that can be stored and retrieved by the users of the information. These
systems allow companies to scan the document into the program for storage and dissemination
while the original document is discarded. (Helms & Mancino, 1998) Keeping these documents
electronically also saves storage space and aids in the ease of access to the information.
Both EDI and IPS pose issues for auditors. There are issues with authorization, document
authentication, and retention of the source documents. The audit team will need to determine if
continuous audit procedures will be necessary to test original documentation before it is
discarded. Controls will need to be tested to ensure that the original documents were scanned in
correctly and are unaltered and authorized. (Messier, et al, 2018) Internal controls for access to
these programs and electronic storage functions will also need to be tested to ensure that the
electronic versions of these documents cannot be changed or accessed by unauthorized users.
References
Edibasics.com. (2021, May 7). What is EDI (Electronic Data Interchange)? EDI Basics. Retrieved
September 15, 2022, from https://www.edibasics.com/what-is-edi/
Helms, G. L., & Mancino, J. (1998, April 1). The electronic auditor. Journal of Accountancy.
Retrieved September 15, 2022, from
https://www.journalofaccountancy.com/issues/1998/apr/helms.html
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance Services: A Systematic Approach
11th Edition. McGraw Hill Education.
Williams A. L. (1997, February 1). The Implications of Electronic Evidence. Journal of Accountancy.
https://www.journalofaccountancy.com/issues/1997/feb/implic.html
Messier, W. F., Jr., Glover, S. M., & Prawitt, D. F. (2017). Auditing & assurance d d d d d d d d d d d d d d d d d d d d d d d d d d d d
d d d d d d d d d d d d d d d d d d services: A systematic approach (10th ed.). New York, NY: McGraw-Hill Education.
