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Using a computerised case study to teach computer auditing: the reasons, the approach and the student response

Marlene Davies University of Glamorgan, Pontypridd, Rhondda Cynon Taff, Wales

Keywords Abstract

Auditing, Computer-based training

Introduction
The rapid changes during the last ten years in computerised accounting systems have resulted in the need for accounting graduates to display a level of understanding and application of accounting software both in accounting and auditing. Undergraduates need to be prepared for the twenty-first century in terms of being able to understand the workings of the computer and the importance of using IT for information and managerial purposes. The School of Accounting and Mathematics, at the University of Glamorgan, has for the past 15 years introduced an integrated systems approach to the teaching and delivery of accounting modules by using computerassisted learning and commercial accounting packages. In 1992, the Accounting and Finance degree was revalidated based on an integrated systems approach to the programme with a series of modules using the computer. In line with the overall philosophy within the school for the accounting modules, the teaching approach used to deliver the auditing modules at the university has been steadily changing over the past few years, from the traditional talk-and-chalk to that of more hands-on auditing. This is to create an awareness of auditing methodology in the work environment and give students a taste of practical auditing. When a new module was introduced onto the accounting degree programme which took the title computer auditing this provided an ideal opportunity to design a new teaching programme, using the computer as an audit tool, rather than concentrating on the controls and security aspects alone. The paperless office makes it more difficult to use a textbook-based approach to a module
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Stemming from the need to develop a teaching programme for the delivery of computer auditing/ computerised system audit that involved a more hands-on approach, this research describes the identification and creation of a case study, workbook and a spreadsheet of source data for students. Results indicate that students prefer using the computer-based case study to learn practical auditing techniques.

Managerial Auditing Journal 15/5 [2000] 247252 # MCB University Press [ISSN 0268-6902]

that concentrates on the computerised accounting system audit. In an attempt to simulate a business situation for this module, a series of demonstration disks were designed to provide a graphical picture of a business and its financial data. Personnel and organisation charts were created along with a database of information representing the payroll. All provided a backdrop from which the students could undertake an audit. The data was set up in Excel in order to enable the students to undertake data mining by using the audit functions, data sort, auto filter, pivot tables, graphs and charts. All of this information forms the basis of a case study specifically designed for the computer audit module. The objective behind developing a computerised systems audit module was to introduce students to a hands-on approach to computer auditing techniques, coupled with the task of providing the students with the opportunity to understand and appreciate the audit methodology and objectives. Leading on from this, students will also gain computerised data auditing skills plus an insight into the interpretation of test results from an audit standpoint. This will ultimately mean that students will develop an awareness of why the tests are undertaken, and therefore it will not merely be an exercise in manipulating data but a true application and understanding exercise. Accounting ledger packages (ALP) have been in existence for quite a long time as means of introducing undergraduate students to computerised accounting systems. However, when it comes to introducing students to the audit of computerised accounting systems or the use of computers in auditing, there is no real equivalent. In order for students to appreciate the complexities of undertaking an audit of a large volume of computerised data there is lack of accessible data. The initial research concept stemmed from the need to develop a teaching programme for

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Marlene Davies Using a computerised case study to teach computer auditing: the reasons, the approach and the student response Managerial Auditing Journal 15/5 [2000] 247252

the delivery of computer auditing/ computerised system audit that involved a more hands-on approach, as compared to the theoretical approach, which did not give any computer based activities for the students. In order to provide a teaching approach which gave an insight into the real world of auditing there was a need to assess what teaching methods were currently employed in other institutions, and develop a programme for the auditing module on the BA (Hons) Accounting and Finance degree that would meet with both academic and professional requirements in developing students and knowledge. The current methodology and approach to the teaching of auditing has made very little use of hands-on computer auditing techniques. The traditional approach has centred on the theoretical issues and control aspects of computerised accounting systems; for example, understanding the security problems associated with computers or the potential areas for fraud. In the workplace, auditors also need to be familiar with accounting systems in terms of the input, processing and output facets of computerised systems on more of a practical than theoretical basis. Auditing involves auditing through the computer not merely around the computer and for this reason it is important for students to have the opportunity to audit data and draw conclusions that will aid in their final audit opinion of the financial statements. While there exist a number of computerised audit systems which may either be off-the-shelf products or in-house specifically designed ones, there are still a number of characteristics that are common to all of them. They are all concerned with testing data to provide assurances that the systems are operating effectively and that there are no material mis-statement or errors. It is in this area of analysing and auditing data that yields a potential for the development of hands-on approach to the teaching of auditing.

was to identify the audit approach to computer systems audit in the workplace and also name the various software packages that were in use by the auditors from those designed in house to those specifically designed and available ``off the shelf''. The intention was to identify the use of the computer in undertaking routine audit work as compared to specific computer audit and audit report writing tasks. Public sector organisations were chosen because: . They have a legal requirement to have an internal audit. Private sector, limited companies, while they may have either an internal audit department or financial control section, do so on a voluntary business requirement basis. . These organisations employ a large number of personnel, as well as being major revenue expenditure organisations the audit sections would therefore be familiar with auditing large volumes of transactions with varying values, which meant that database analysis would lend itself to computer based auditing techniques.

Questionnaire summary

The summary results revealed that the majority of the audit sections used wordprocessing and spreadsheet packages, as well as specialist off-the-shelf audit software packages designed specifically to audit certain accounting software. A number used in-house interrogation techniques on their accounting systems, which was to be expected, especially as their accounting systems had probably been specifically designed in-house in the first place. The response was good; 26 audit sections/ departments replied (representing 63 per cent), all of which had answered all the questions. Table I gives the breakdown between inhouse designed audit packages, audit software packages and the use made of Excel/ Word and Lotus.

Research approach undertaken


The initial exercise entailed circulating a questionnaire to 41 internal audit departments or sections. This was distributed to local authorities, health authorities and NHS Trusts. The purpose of the questionnaire was to establish the use made of computers in auditing by the auditors. The main aim of the questionnaire

Stage 1 questionnaires to internal audit departments

The next stage in the programme was to find out how other institutions taught computer auditing and how much use was made of computers in giving students hands-on experience. Other institutions' approach to

Stage 2 questionnaires to other teaching institutions

Table I In-house 19 Computer audit packages 15 Excel, Word/ Lotus, AmiPro 17

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Marlene Davies Using a computerised case study to teach computer auditing: the reasons, the approach and the student response Managerial Auditing Journal 15/5 [2000] 247252

teaching computer audit would provide confirmation of the current thoughts on the approach to using computers for teaching computer auditing. A questionnaire was sent to all UK universities offering an undergraduate degree programme in accounting, or accounting with other subjects. The objective of the questionnaire was: . To identify the degree programmes that included auditing and/or computer auditing modules as part of the programme of work. . To identify from the modules that were specifically related to auditing the amount of time allocated to computer auditing. . To identify the use made of computers in teaching computer auditing and or other aspects of auditing, e.g. flowcharting for control purposes and word-processing for report writing. The response rate to the questionnaire was encouraging, with 69 per cent of the questionnaires returned. A summary of the results indicates that while computer auditing is a recognised element of a number of accounting degree programmes, not a great deal of time is devoted to its teaching, despite the fact that most auditing is involved with computerised accounting systems, while even less time is allocated to teaching hands-on computer auditing. Based on the comments received from the questionnaire, it is not through lack of need but through lack of available material to use, that computers are not used by institutions in teaching computer auditing. Table II gives an overview of the amount of time allocated to computer audit, when it is not a stand-alone module, and the use made of computers in teaching the computer audit element of auditing. While only a small number of institutions teach computer auditing as a named module/ course within the degree programme (12 per

cent) the remaining 71 per cent (while having a certain amount of computer auditing within their auditing course), do not make use of the computer as a means of giving students hands-on experience in computer auditing. All major organisations now keep their accounting records on computer; an introduction to database auditing should form an essential part of the accounting students' course of study. This would aid students' understanding of the potential problems associated with computers as well as giving them an opportunity to interpret test results. The original concept seemed therefore to be falling into place based on the need to ensure that undergraduates grasped the general understanding of the principles and practices of computer auditing. It also met with the present thinking for reducing the number of contact hours between student and tutor. By introducing a computerassisted learning programme, students would be able to work at their own pace What emerged from the two questionnaires was that, while the professional auditor works in organisations that have different computerised accounting systems and make use in-house of the audit packages and Microsoft office/lotus suite packages, the overall objective remains the same. That is to ensure that control systems exist, that the data do not contain any material errors or a potential for fraud, and that the auditor can rely on test results in order to draw an opinion on the financial statements. The method of delivering computerauditing modules requires the use of computers in order to create an understanding of the concepts. There are various auditing computer packages, ranging from bespoke ones specific to certain organisations, to the popular ones available on the market. In order to give a basic

Questionnaire summary review

Table II Percentage allocated to computer audit 100 40 30 20 15 10-14 9 or less 0 0 Number of universities 2 1 2 2 5 11 9 4 (no computer audit) 7 (no auditing) Computers not used Use of Excel Use of IDEA Other computer in teaching or Lotus 123 or ACL software 0 0 1 0 4 7 4 0 0 1 1 0 1 0 3 4 0 0 1 0 1 0 1 1 1 0 0 1 1 0 1 1 2 2 0 0

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Marlene Davies Using a computerised case study to teach computer auditing: the reasons, the approach and the student response Managerial Auditing Journal 15/5 [2000] 247252

understanding of data mining, in relation to what the auditor has to do with the data, the best course of action is to use Microsoft office's Excel spreadsheet. Basically because this is the software available at the University and the students have been introduced to the software in other module studies. It also cuts down on the cost of purchasing new and additional software.

The computer audit teaching programme


Based on the results and the positive thinking behind the original idea, the next stage was to design a case study, workbook and a spreadsheet of source data on disk for students which incorporated computer auditing hands-on with audit principles and methodology. The teaching of auditing module students could then take on a new dimension. The plan of action centred on using the Excel spreadsheet to house a substantial amount of data that could be analysed and tested by the student. A combination of audit techniques, based on the spreadsheet set of ``tools'' menu, enabled ``data mining'' to be undertaken. As a background to the task, a mini case study was written outlining a company which had had its records recently computerised. Initially the emphasis would be placed on personnel and payroll records, which would provide ample source of data for analysis. This module incorporated the computer as a source of information as well as a tool for both teaching and audit purposes. From the information supplied, the students have to undertake specific tasks in the computer laboratories that complement the lecture programme. The whole teaching programme revolves around a company that designs and produces giftware, J & M. Keltree plc. A detailed case study coupled with a demonstration disk to bring the company to life with graphic illustration and narrative, provides the core material. Payroll data produced on the Excel spreadsheet format for 100 employees (some current, some past employees) provides data for analysis. Each student has access to the demonstration disk and data disk via the network in the teaching department. The information relating to the employees was input onto an Excel spreadsheet. The data had to be input manually, even though Excel has a capacity to download data from another source. Accessing payroll data from a firm or institution was not practical due to Data Protection legislation; the data was

Design and development

therefore ``manufactured'' for the purpose of this exercise. This data source would then provide the students with material on a disk from which to undertake the exercises and tests outlined in the workbook. The workbook would provide examples of data and test results, but would not be the same data. The reasoning behind this was to ensure that the students arrive at their own test results, recommendations and opinions. By using Excel, students can appreciate how the computer can help in the business assurance and review activity. The characteristics and properties of a spreadsheet, such as Excel, provides the following useful business assurance techniques: . Arithmetical formulae to ensure consistency in calculations. . Data sort, where data can be broken down into manageable segments and used to identify certain aspects of a large volume of data. . Audit tools; precedents and dependants, where the interrelationship between certain sets of data can be identified and used as an assurance as to the logical creation of dependent data or prerequisite data. . Auto filter, which allows data to be analysed and grouped by different categories. . Pivot tables and data mining, to probe the existence of underlying source data and recreation in graphical format. . Creation of graphs and charts, that enable the reader to understand by means of pictures trends and forecasts. These tasks have to take into account the information relating to the case study: . identifying audit risk; . audit planning approach for computerised accounting systems audit; . audit testing; . security and control objectives; . analytical review; . cost comparisons, trend analysis and some value-for-money issues; . interpretation of test results; . creating working papers by utilising the computer as an audit tool; . reporting the findings to the appropriate level; . use of spreadsheets in accounting and audit. The objective is to develop the student's analytical skills, inquisitiveness, probing ability, and data manipulation to a useful purpose. The principle rests on the principle of ``I see, I hear, I do and I understand''.

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Marlene Davies Using a computerised case study to teach computer auditing: the reasons, the approach and the student response Managerial Auditing Journal 15/5 [2000] 247252

The Excel tasks are supported by a workbook that gives a stage-by-stage progression through the relevant computer tasks. Within the workbook there would be screen dumps to show students the various stages they should be at when they use the functions attributable to Excel; this will help the students proceed along the correct path in order to familiarise themselves with using Excel. The exercise will then have achieved two objectives: that of introducing auditing tests on data listings, and introducing the students to more complex aspects of Excel, thereby developing student skills in auditing and computer applications. By having data to analyse, test, and draw conclusions on, the students will be required to consider the broader issues surrounding computer audit and present their conclusions in a report. This in turn develops their report-writing skills, and uses the report format document in Microsoft word. The case study forms the focal point of the whole module; the student activities revolve around this one company. The tasks require the student to use the functions of the Excel spreadsheet to analyse and extract information useful for the audit. This means that tests such as checking the payroll against a staff list, confirming logical sequences of dates, reasonableness of amounts and age of personnel must be completed. The audit findings must be presented in either report format, working papers, or memorandums using Word. This enables the students to transfer selected data from Excel into Word, and thereby illustrate some of their results in either graph or table formats if applicable. The intention of the hands-on teaching approach is to give the undergraduate student an opportunity to develop, and possibly acquire additional computer literate, analytical, and audit skills. There were limitations/parameters within which the project had to operate: . Commercial software packages such as IDEA/ACL are expensive audit packages to purchase and only operate well when a large volume of data requires analysis. . Students may find themselves employed in an environment that does not have either of the software packages chosen. . The objective is to introduce concepts and develop student awareness, not to specifically train individuals to operate named computer audit software. . Cost is a major factor in deciding the approach to follow; the university currently has Excel available, and it

seems a waste of resources not to capitalise on assets already in the university's possession.

Student responses

The computer audit module has now been delivered to three cohorts of students. It seems appropriate therefore to consider the students' response to this audit module. The objectives of the module are clear and easily identifiable: . to expose the student to the importance of analytical review to the auditor in forming an opinion; . to instil the importance of internal controls and dependency of some data on others; . to provide a meaningful learning experience which is both valuable and stimulating; . to utilise the hands-on approach to teaching in order to develop student computer literacy, audit and interrogation skills. In order to establish whether these objectives were achieved, students were asked to complete a brief questionnaire, partly as part of the annual monitoring and review process, and partly as a means of providing a base from which to further develop the module. The following points summarise the feedback obtained from the student questionnaires, both the annual monitoring review and the specific questionnaires.

Benefits for the students


.

Limitations

Creates a living situation that allows them to analyse and test in a realistic way, rather than imagine or surmise their course of action. Adds to developing student confidence in using computers. Provides a variation to the traditional teaching approach. Scenarios and case studies in the past did not contain volumes of data, and their analysis was very superficial. Enhances the teaching of auditing, encourages interactive audit, and allows individuals to progress at their own pace. For those without any experience of the workplace, it gives an opportunity to undertake realistic tasks.

Practical outcomes

The practical outcome of this approach to teaching auditing is that it will: . Replace paper-based activities with a simulated situation of the workplace. . Produce an integrated approach to the delivery of computer auditing.

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Marlene Davies Using a computerised case study to teach computer auditing: the reasons, the approach and the student response Managerial Auditing Journal 15/5 [2000] 247252

Enable students to undertake tasks that will yield answers that need interpretation. Provide the students with the option of working at their own pace. Assist students in the creation of working documents and report writing. Enable tutorials to be more effective, which should give students a higher level of understanding of practical auditing issues. Provide students with a skill and ability profile that is beneficial to potential employers. The use of a case study brings the audit issue to life and yet manages to cover all the traditional audit teaching that was previously taught by lectures and example questions. The tasks attached to the case study are such that the students cover all the syllabus without it becoming a chore.

their appreciation of audit issues surrounding computerised accounting systems, and the potential of using computerassisted audit techniques and specialised audit software packages. It is anticipated that introducing an interactive on-screen display disk, that depicts the scenario in graphic format, can only further develop this project. Details of the company in the case will be found on screen with different scenarios built into the programme. Individual job specifications for certain staff members, along with some problems that exist within the company, will then set the scene for a potential fraud that the students can investigate. It is hoped that the project can be developed a stage further by introducing students to Access from Microsoft Office suite. This will enable even greater data analysis on relational databases. In addition, there is potential here to design a CD-ROM, which would give a detailed and graphical scenario of a company's activities, detailed sources of data and organisational structure, as well as being completely interactive. Students would be able to ask questions, receive answers immediately, and have feedback to their evaluations/ recommendations. This would certainly be a true multimedia interactive audit module case study. Work has already commenced on the idea, while enquiries are in hand to seek potential sources of funding.

The future

Conclusions
This teaching approach therefore moves away from the old method of auditing around the computer, to simulating the experience of auditing data downloaded into a format that enables audit testing and analysis. The principles of using CAAT's (despite not having commercial audit packages) can be taught through the hands-on application of the spreadsheet. The feedback has encouraged the development of a more advanced case study approach where data will be input onto a commercial software package Pegasus Opera and the information eventually downloaded onto Excel for further analysis. Additional data will be introduced for sales orders, work demand patterns and delivery records as well as sales invoices. This will enable the student to cross-reference the sales invoice, to the work schedules and deliveries. The students have found the tasks demanding, and the overall view indicates a general preference to using a computer-based case study to learn practical auditing techniques. This module provides the students with a base from which to develop

Davies, J. and Warman, A. (1995), ``The new accounting, a systems approach'', Account, Vol. 7 No. 2. Davies, M. (1997), ``The use of Excel as an audit tool'', Account, Vol. 9 No 2 summer. Gallagher, D. (1996), ``A financial accounting and auditing dataset for teaching in higher education'', Account Vol. 8 No 2 Summer. Webb, A. (1994), ``An introduction to file interrogation'', ACE Conference, London. Wilson, D. (1995), ``Teach the process not the content'', Managerial Auditing Journal, Vol. 10 No. 3.

Further reading

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