APPLICATION OF COMPUTER ASSISTED AUDIT TECHNIQUES (CAATs)

Introduction

Business activities are now largely driven by computer. Performing an audit of
any Computerised enterprise without a computer is hardly an option. Therefore
CAATs refer to the use of certain computer software that can be used by an
auditor to perform audits and to achieve audit excellence.

1. CAAT Vs Traditional Audit approach

Traditionally auditors have come under criticisms because they reach
audit conclusions based upon limited samples. It is not uncommon for
an auditor to sample 20-40 transactions and declare a problem or
conclude that “controls appear to be effective.” Management upon
receiving the verdict of the auditors may question the validity of the
audit conclusions. Management realises that they conduct thousands or
perhaps millions of transactions a year and the auditor only sampled a
handful. The auditors will then state that they conducted the sample
based upon Generally Accepted Audit Standards (GAAS) and that their
sample was statistically valid. The auditors are then forced to defend
their audit approach.
Another common criticism of the audit profession occurs after a problem
emerges. Whenever a problem occurs within a department, management
might ask, “What was the auditor doing?” If the audit department had
reviewed the area recently it becomes a sticky situation as the Audit
Manager attempts to explain that the reason the problem was not
identified was because the problem was outside of the scope of the audit.
The audit manager might also try to explain that the sample was “a
statistically valid sample with a 95% confidence level.” The Audit
Committee cares only that a problem went undetected by the audit
function.

2. CAATs to the Rescue

CAATs addresses the problems highlighted above. CAATs, as it is
commonly used, is the practice of analysing large volumes of data which
look for anomalies. A well designed CAATs audit will not be a sample,
but rather a one hundred per cent review of all transactions. Using CAATs
the auditor will extract every transaction which the business unit
performed during the period reviewed.
The auditor will then test the data to determine if there are any problems.
For example, using CAATs, the auditor can find payroll data such as
duplicated employee names or numbers or other data anomalies.
The CAATs auditor could also easily look for duplicate vendors or
transactions. When such a duplicate is identified, they can approach
management with the knowledge that they tested 100% of the
transactions and that they identified 100% of the exceptions.

3. Classification of CAATs

There are probably four classes of CAATs, namely:
(a) Data analysis;
(b) Network Security Monitoring Software/Utilities;
(c) OS and DBMS security Monitoring software/utilities; and
(d) Software and code testing tools.

4. Specialised Software

In general terms, CAATs can refer to any computer program utilised to
improve the audit process. Generally, however, it is used to refer to any
data extraction and analysis software. This would include programs
such as SAS, Excel, Access, Crystal Reports, Business Objects, etc. There
are, however, two main companies that have developed specialised data
analytic software specifically for auditors. They are Audit Command
Language (ACL) and Interactive Data Extraction and Analysis (IDEA). A
third one is InformationActive’s ActiveData For Excel. This particular
software is normally attached to excel spreadsheet as an add-in program.

5. Features of CAATs

The general feature of CAAT tools includes the ability to perform varied
analytical procedures and queries as listed below:
(a) Data Queries;
(b) Statistics;
(c) Stratification;
(d) Summarisation;
(e) Missing Numbers detection;
(f) Duplicate Items detection;
(g) Aging of Transactions such as inventory and receivables aging;
(h) Sampling Functions;
(i) Field Manipulations;
(j) Payroll Audit as in Ghost Worker Detection; and
(k) Exporting and Importing data files across and between different
software platform such as; Access, Excel, Word, and even publish
audit reports as PDF documents directly from the CAAT software.

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