Electronic data interchange and image-processing systems are a reality in the accounting and
auditing world now and have basically replaced the paper record keeping, filing systems, mail, and
email that many are familiar with. "By moving from a paper-based exchange of business document
to one that is electronic, businesses enjoy major benefits such as reduced cost, increased
processing speed, reduced errors and improved relationships with business partners." (EDI, n.d.)
Even though email is considered electronic, it is still a manual process that people must handle
unlike electronic data interchange. This electronic processing system reduces the risk of errors and
material misstatements. EDI cuts out the people and takes the data from one internal system
straight to the other internal system. The types of documents that may be transferred from one
internal system to another include invoices, customs documents, purchase orders, payment
documents, and inventory documents.
While there are many benefits of technology and electronic data interchange, there are some
negative implications as well when it comes to auditing. EDI leads to changes needing to be made
in the audit process and potential security breach issues. "The auditor needs to understand how
the entity conducts business using EDI and to adjust audit procedures accordingly. EDI creates a
dependence on the trading partner's computer system, so its errors and security breaches might
affect the client's system." (The Electronic Auditor, 1998) Errors made electronically should be
considered when performing an audit of a company that utilizes EDI such as overstatements or
understatements of revenue, accounts receivable, or inventory components. Due to image-
processing systems diminishing physical paper trails, the auditor needs to ensure that the
electronic documentation is authentic. "The auditor should test controls that provide assurance
that only valid and authorized documents (such as insurance claims that result in cash
disbursements) are scanned into the system. For example, the auditor could review an image of a
purchase order when someone had used a desktop publishing program to alter the quantities,
prices and other relevant data, creating an image that could be substantially different from the
now-discarded original paper document." (The Electronic Auditor, 1998) The auditor should ensure
that proper controls are in place to make sure that documents are authentic and accurate.
“Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents
in a standard electronic format between business partners.” (What Is EDI (Electronic Data
Interchange), 2021) EDI has revolutionized how companies do business with one another. Prior to
EDI, ordering inventory would take several days using physical documents and purchase orders
being mailed between businesses. Now it takes hours to complete the entire ordering process,
which saves time and cost for companies. Some of the cost savings include, paper, postage, and
offsite storage costs. Image processing systems work hand in hand with EDI to transfer
information between businesses electronically. “Image processing is a method to perform some
operations on an image, to get an enhanced image or to extract some useful information from it.
It is a type of signal processing in which input is an image and output may be image or
characteristics/features associated with that image.” (University of Tartu, n.d.)
EDI and Image Processing Systems not only give an advantage to businesses but they can also
assist in auditing a company. If the company being audited adds an integrated test facility (ITF)
built into their systems auditor can test processes without affecting actual data. “An integrated
test facility (ITF) is a fictitious entity, such as an imaginary company, established on a live data file.
It enables the auditor to enter test transactions into the system without corrupting the integrity of
real operational or financial data.” (AICPA, 1996) This allows for a wide-range of testing, because
this test data follows the same process as an actual transaction. It also gives repeating auditors
minimal difficulty when testing controls. Most if not all EDI systems come with ITF.
Although EDI and Image Processing Systems have brought significant benefits to businesses and
auditors, they can also have an inverse effect. If information is not transferred correctly the
business could end up purchasing too much or too little of inventory which would affect the
business significantly. Also, if ITF is not available for an auditor it will be more difficult to audit
these controls. Auditors would need to do extensive research on how the controls work properly
and would require more sampling.
In my opinion, the pros outweigh the cons. EDI and Image Processing Systems have done wonders
for the processing of invoices and sending communication business to business. My current
employer has gone paperless and in the implementation phases we tested using ITF. We wanted
to ensure that auditors would be able to see the controls with ease. We have also been keeping 7
years’ worth of documentation offsite and shredding documents prior. Our costs for offsite
storage have decreased and will be eliminated as of 2025. I have done several walkthroughs with
E&Y and have had no issues with these controls since implementation.
References
Messier, W. Glover, S. Prawitt, D. (2019). Auditing & Assurance Services: A Systematic Approach
11th Edition. McGraw Hill Education.
What is EDI (Electronic Data Interchange)? (2021, May 7). EDI Basics. Retrieved September 14,
2022, from https://www.edibasics.com/what-is-edi/
University of Tartu, U. (n.d.). Digital Imaging Processing. University of Tartu. Retrieved September
14, 2022, from https://sisu.ut.ee/imageprocessing/book/1
American Institute of Certified Public Accountants and Canadian Institute of Chartered
Accountants, "Audit implications of EDI; Auditing procedure study;" (1996). Guides, Handbooks
and Manuals. 36.
EDI. (n.d.). What is EDI (Electronic Data Interchange)? EDIbasics.com. Retrieved September 15,
2022, from https://www.edibasics.com/what-is-edi/
Messier, W. F., Jr., Glover, S. M., & Prawitt, D. F. (2017). Auditing & assurance services: A
systematic approach (10th ed.). New York, NY: McGraw-Hill Education.
The Electronic Auditor. (1998, March 31). Journal of Accountancy.
https://www.journalofaccountancy.com/issues/1998/apr/helms.html
