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 into 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.
