Audit Software Project Analysis IDEA

Audit Software Project Analysis IDEA

AuditSoftware Project Analysis: IDEA

AuditSoftware Project Analysis: IDEA

Technologyhas continued to impact nearly all aspects of human life, includingthe audit practices. The general perception that the application ofthe new technology increases efficiency and accuracy motivatedsoftware technologists to develop software that can be used byauditors. The Interactive Data Extraction and Analysis (IDEA) is oneof the software that has gained popularity among auditors. Theprototype of IDEA was developed in 1986 by the Office of the AuditorGeneral of Canada, but the initial Windows version of IDEA waslaunched in 1995 (Matila, 2015). The software has been improved overtime through the inclusion of new features and enhancement of theexisting ones. By the year 2000, IDEA was rated as the audit softwarewith the highest level of user satisfaction (Matila, 2015). Thispaper will focus on the purpose of using IDEA software, two examplesof how IDEA is used in audit, benefits, disadvantages, and adiscussion of how IDEA could be used in auditing the financialstatements of PepsiCo Incorporation.

Purposeand capabilities of IDEA

Auditorsdecide to use IDEA in order to achieve three key purposes. First,auditors IDEA is perceived to be an excellent tool that helpsauditors achieve their audit objectives by focusing on themanagement’s assertions on the existence, completeness, andvaluation (Alen, 2008). The software allows auditors to achieve thispurpose by allowing the user to increase the scope of the auditwithout increase the time required to complete the audit process. Thesecond purpose of using IDEA is to help the auditor analyzevoluminous information that is stored in client’s computers, whichwould otherwise be difficult to do without the help of the software.Third, IDEA is developed with a special capability that allows it todownload files in any format, including EBDIC and ASCII. Therefore,the purpose of selecting and using IDEA is to extract files from theclient’s databases without distorting the content (Alen, 2008).

IDEAis preferred by many auditors because of its unique functionalitiesand capabilities that may not be available in other software. Forexample, IDEA database is constructed by importing client’s datadirectly and putting it into different types of fields ready for useduring the audit process (Matila, 2015). For example, IDEA softwareallows the audit team to browse through the client’s databaseidentify desired records, index the records, extract the files,search for duplicates, and import the sorted files for analysis.Other special features of IDEA include the capacity to develop pivottables, perform Benford analysis, sampling of audit items, appendingdatabases, drilling down of statistics, and comparing databases(Matila, 2015). The wide range of capabilities allows auditors torely on IDEA only in performing all functions that require the use ofsoftware.

Examplesof IDEA application in relation to audit capacity

Auditorsconsider sampling to be one of the fundamental aspects of the auditwork. IDEA provides them an option to use at least one of the fivesampling techniques (including random, systematic, classicalvariables, stratified random, and the monetary unit) to sample theaudit items, such as inventory (Audimation Services Inc, 2015). Auditfirms also use the Audit Planning function of IDEA to determine thesample size, error limits, and the confidence level. Audit companiesalso use IDEA software to ensure that the processes for data analysismeet the standards required in a risk-based audit. The software hasan inbuilt formula for computing the risk of material misstatement(RMM). Auditors are only required to link their procedures (includingthe timing, nature, and the extent of tests) to the RMM (Case WareIDEA Inc, 2009). The software help auditors determining the value ofaudit risk by multiplying RMM with the detection risk.

Benefitsof using IDEA software

Usersof IDEA enjoy numerous benefits compared to auditors who use othertypes of software or those who do auditing using conventionalapproaches. For example, the fact that IDEA allows the auditor toextract data from the client’s database and import it into adifferent file type means that the work of the audit team issimplified (Auditware, 2015). This is because members of the auditteam do not have to convert the data from the client’s version intotheir preferred versions. According to Auditware (2015) IDEA softwarealso has features that allow auditors to conduct exceptional testsfor strange or unusual items. This ensures that the audit team hasthe capacity to audit all items irrespective of their nature.Moreover, IDEA increases efficiency as well as the effectiveness ofthe audit team. According to Alen (2008) auditors who use IDEA areable to expand the scope of their work and increase the sample sizewithout the need to recruit more employees. In essence, IDEA users ofIDEA have many benefits that auditors who use conventional methodsand other types of software cannot enjoy.

Disadvantagesof using IDEA software in auditing

Similarto other forms of assisted audit, IDEA is associated with thechallenges of staff training. Although the unique features of IDEAserve its strength over other types of software, they force auditfirms to train members of the audit team, including those who haveskills in other types of audit software (Alen, 2008). Additionaltraining of the members of the audit team has both the time and costimplications on the audit firms. In addition, auditors are expectedto make their judgment on whether the client should change accountingpolicies depending on the need to comply with the regulations and therisk of fraud. The audit program, IDEA, reduces the capacity ofauditors to make such judgments since most of the functions areautomated.

UsingIDEA to audit PepsiCo

IDEAsoftware will be used to carry out six major functions when auditingthe accounts of PepsiCo. The first function is data analysis, whereunique features of the software will be used to conduct the analysisof the high value transactions and reconciliation of physical countsamong other types of analysis (Auditware, 2015). The second type offunction is calculation, where IDEA will be used to generate reportson items in their order of profitability, assesses the clericalaccuracy, and percentage changes in prices or sales. Third, thesoftware will be useful in performing exception tests, such as theidentification of surplus inventory and the isolation of items with acost higher than the retail prices (Auditware, 2015). Fourth, IDEA issignificant tools that will help the audit team identify gaps andtest for duplicate products. The fifth function is comparing andmatching, where the audit team will use IDEA to compare the sellingprice to cost or general ledger volume to physical counts. Lastly,the audit team will use IDEA to do sampling, where random sampleswill be identified for physical verification. Members of the auditteam will be training on different functions of the IDEA software inorder to help them maximize its utility during the audit.

Conclusion

Theuse of audit software (such as IDEA) has been increasing with timesince they increase the effectiveness as well as the efficiency ofthe audit team. IDEA is preferred to other types of software becauseit has special features that allow auditors to expand their scope andaudit unusual transactions. In addition, IDEA makes it easy forauditors to extract files from the clients’ databases and analyzethem directly without the need to convert the files into usableversions since the software is compatible with multiple systems.Audit firms should train members of the audit team in order to ensurethat they have the skills they need to utilize the unique features ofIDEA during the audit.

References

Alen,V. (2008). Useof Data Extraction &amp Analysis Software in a Financial StatementAudit.Boston, MA: Making Auditors Proficient, Inc.

AudimationServices Inc (2015). IDEAsampling capabilities.Houston, TX: Audimation Services Inc. Matila, M. (2015). InteractiveData Extraction and Analysis, IDEA.Altamonte Springs: Institute of Internal Auditors.

Auditware(2015). IDEA V9: IDEA data analysis software. Auditware.Retrieved September 8, 2015, fromhttp://www.auditware.co.uk/content/70/ideav9

CaseWare IDEA Inc (2009). Usingdata analysis to meet the requirements of risk-based audit standards.Toronto: Case Ware IDEA Inc.