Question

3. In today’s electronic environment, most of the manual/traditional methods and concepts of internal audit have changed. For example most of the evidences are now in electronic format. List and discuss three of the most important advantages and disadvantages of the electronic era as they relate to audit evidences and internal audit functions.

Answer 1

Audit processed electronically is an evaluation of the accuracy and proper functioning of an organization's data processing. The purpose of auditing is to ensure compliance and check any fraudulent activities.

Advantages of Electronic Era:

1. Increase in Security - Physical documents are more difficult to secure as compared to electronic data that can be protected through digital passwords and other digital security methods. Also physical documents can be easily copied or lost which is not possible in case of digital format of the documents when they are password protected. An electronic tracking system can also provide notation on who has reviewed each data element for security review purpose.
2. Increased Accessibility with Tracking - Paperless audit can provide increased accessibility to financial documents for auditors. It can significantly decrease the amount of time required by the accounting staff to provide documents to auditors. Such accessibility can help auditors conduct their review from outside the business facility. Mangers from the company being audited as well as management of the auditing firm can easily track and monitor each step of the review process which helps managing the auditing timeline.
3. Fast Review with High Accuracy - Paperless audit takes less time when compared to traditional paper trail auditing process. Financial documents can be easily processed for review with higher accuracy. It minimizes the scope of human error. Less manual work and no physical meetings with paper forms can decrease the total auditing time process.

Disadvantages of electronic Era:

1. Requirement of Technology - To conduct an electronic audit, an auditor must be comfortable to use the software he/she is expected to use. Also sometimes, business owners find it difficult to retrieve audit reports electronically.
2. Security - Auditing involves reviewing of sensitive information about a company which includes financial statements and reports. The risk of sharing such information and data electronically is high. Such information must be shared among only those people who are meant to receive or share it. For example management of the company being audited and auditors.
3. Different Filing Requirements - The IRS (Internal Revenue Service) and other government agencies have different rules for electronic data keeping as compared to paper record keeping. Organizations must know how to store audit reports and for how long they must store it before agreement for an electronic audit. Although electronic audits are called paperless but still some paperwork maybe needed for government record keeping rules.