Question

Explain how the increased use of e-commerce, including electronic data interchange (EDI), by businesses has affected the auditor or accountant.

Answer 1

Introduction :

As we have entered the twenty-first century, the business world is consumed more and more by eBusiness. While the electronic sale of goods, services and information represents only a tiny fraction of all economic activity, the Internet seems to represent almost unlimited possibilities, as both a conduit and a disrupter of "traditional" business. The ongoing "virtualization" becomes more real every day and suppliers, partners and consumers are looking for trust and assurance.

With the emergence of eBusiness, the inherent reliability of information systems for transactions processing has increased tremendously. Controls over transactions are increasingly embedded in software and extensive data on non-financial dimensions of business performance are becoming more available for the auditor's evaluation. However, because the integration of eBusiness technology is ongoing at an increasing speed in every industry and since information technology and deregulation have lowered barriers to entry in many industries, any organization can lose its viability very quickly, making financial statements less reliable predictors of the future.  

Therefore auditors should consider focusing on the eBusiness strategies of their clients, the eBusiness risk that must be managed to achieve these strategies and the audit risks faced by any organization. Auditors will have to make more serious attempts to do a formal analysis of an organization's eBusiness strategy and determine whether it can be achieved. This approach is based on the belief that, if an organization has a viable strategy, reasonable plans to achieve this strategy, and effective internal controls and account balances that are close to or corresponding to expectations, then the need for detailed auditing is limited to the exceptional items only.

Electronic data interchange (EDI) :

This will become even more crucial in the near future when auditors can expect all accounting transactions to be in electronic form without any supporting paper documentation at all, because electronic storage will be common and legally accepted. Technology such as electronic data interchange (EDI). These information technologies greatly change the nature of audits, which have so long relied on paper documents and other physical evidence.

However, auditors performing attest services for clients that process transactions on these advanced systems will not only need to be financially and technically competent about this technology. They will also need to revise their traditional (annual) audit approach by focusing on an organization's eBusiness strategy and associated eBusiness risks and this in a more frequent, in-depth and faster manner.