There once was a time where spreadsheets were sheets of actual
paper spread across a wide table. Columns and rows marked across
the sheets with people sprawled across them jotting down numbers
in cells. If a change needed to be made on one cell, erasers flew
across the page, striking old numbers and recalculating new ones.
What a pain that must have been.
I thought this week’s reading and the discussion prompt were really
well suited together. The discussion of what constituted evidence
and documentation is really well understood from the framework of
shifting paradigms of operations. In this shifting digital environment
with deepfake technology, anonymous online transactions, and
blockchain technology, what is real and what can be documented is
an intriguing question.
We are asked to define two technologies that have been available to
the practice of audits for quite some time. EDI or Electronic Data
Interchange can be seen as the standard digitization of information
that was typically collected and transferred by paper. Taking paper
transactions of documents, forms, purchase orders and invoices and
automating their collection storage and transmission between
customers and producers or within the links of a supply chain.
Image processing systems originated from scanner-type equipment
that took a digital image of documents and facilitated the electronic
storage of these images, reference them for ease of access, and
organize their placement within a database. Today, image processing
systems can do so much more, from image recognition, conversion of
handwritten notes to computerized text, and machine learning
techniques to enhance, clarify, or replace difficult to read text, among
many many other operations possible.
Research into the academic literature around these tools highlights
that the implications of these systems in audit evidence and
documentation have been around since the dawn of personal
computers, and many of the concerns of that time are still worthy of
consideration today. In a 1989 article in MIS Quarterly, the growing
use of EDI in businesses raised concerns over among other things,
“There is virtually no paper for the auditor to examine in this system.
The only paper is the contract between the manufacturer and its
suppliers. The manufacturer has established a policy of purchasing
goods only through suppliers who agree to participate in the
electronic data interchange network.” Adding “Such developments
immediately raise questions concerning control” (Hansen, 1989)
In a 1997 article in The CPA Journal, the author was more direct in
which elements EDI raised concern. Stating, “financial statement
assertions most affected by EDI are completeness, accuracy, and
authorization. For example, questions asked with respect to controls
could include: How do we know that all goods shipped are billed
(completeness)? Was the customer billed the correct amount
(accuracy), and were all price exceptions approved (authorization)?”
(Splettstoesser, 1997)
Image processing has created many of the same challenges as well. In
a 1997 article in The Journal of Accountancy, the author highlighted
that with image uploads, there were limited controls over the
retention of original documents and the long-term storage of files
after uploaded. (Williamson, 1997)
For good reason this discussion has evolved as technology evolves,
but the standards of the practice of auditing have adjusted as well.
Statement on Auditing Standards No. 80 was amended to reflect the
emergence of electronic transactions as they relate to assertions and
evidential matters, specifically the addition of section 18 that directly
addresses EDI and image processing.
The world changes and new technologies will come into direct
conflict with the standards and processes we once thought
immutable SAS No. 80 is a good example of standards meeting the
challenges of time, but it is only a matter of time before even these
concepts become obsolete and a new standard will need to be
envisioned.
Work Cited
Hansen, J. V., & Hill, N. C. (1989). Control and Audit of Electronic
Data Interchange. MIS Quarterly, 13(4), 403.
https://doi.org/10.2307/248724
Williamson, L. (1997). The Implications of Electronic Evidence. Journal
of Accountancy.
Splettstoesser, I. B. (1997). Managing and auditing electronic data
interchange. The CPA Journal, 67(11), 26–32.
