UWCISA – Discussants Comments An Examination of Contextual Factors and Individual Characteristics Affecting Technology Implementation Decisions in Auditing Rob Rowe, KPMG

1 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Motivation for the study - Explores reasons for the slow adoption of new technologies in public accounting firm audit engagements as well as potential solutions - Recognizes that impediments to technology use are different within public accounting versus other industries - This is very topical in practice as firms strive to: - Implement more efficient and effective auditing techniques - Empower and motivate auditors to perform IT-related audit techniques that once were primarily performed by specialists - Adapt their audit approach to the increasing complexity of client IT environments

2 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Motivation for the study (Cont’d) - “New Technologies” covers a lot of ground, not all of which is as important in the study context - Technology may be used for many parts of a financial statement audit - Communication via and electronic meeting rooms - Working paper automation - Work-flow automation - Decision support (e.g. automated logic tools to help determine the best audit approach) - Control Testing (e.g. segregation of duties) - Substantive testing - It is no longer true that user resistance to new technology is a “widespread problem” across professional fields as stated – today’s auditor is very technology savvy, and most audit tools are readily accepted - In practice only the last two are “optional” and relevant for this study as the others are mandated as standard practice

3 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Motivation for the study (Cont’d) - In particular, use of monetary unit sampling is an optional technique that is proven to be a more efficient and effective method of sampling, which can only be performed using a CAAT - Within the body of the study there is a focus on optional use of CAATs for substantive testing, which is appropriate - It would have been beneficial to more narrowly state the types of technology and procedures at the start of the study

4 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Theoretical Support - Accounting publications, Business related books, IT research studies, behavioral studies - Excludes the CICA Audit technique study on CAATs, recently updated, which covers many elements of this study

5 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Theoretical Support (cont’d) - UTAUT model referenced - Three predictors: 1. Performance Expectancy 2. Effort Expectancy 3. Social Influence - Only the first and third are used in this study as they are the ones thought to be most impacted by the external audit context - Many in the “field” would say that the second predictor is the single largest predictor, but it is very true that these others are important - we still see cases where auditors do not implement very user friendly tools

6 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Theoretical Support - Some reference sources are a bit dated and may not be relevant today, especially with respect to audit firm structures, environments and IT usage - Case study with a group of auditors – managers and in-charges - Although strongly statistically based, results in practice may not mirror those obtained within a training course - The case study in appendix 1 would not be a typical in practice - Auditors know of most tools to be used - Most tools are endorsed by senior management - Anomalous results (i.e. risk averse auditors being more likely to implement technology when budget pressure is applied) obtained that may not be seen in practice

7 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Analysis of results - Performance expectancy and social influence affect technology acceptance in an audit context. - Auditors with shorter-term budget and evaluation periods will be less likely to implement technology - Budget seen as encouraging “dysfunctional” behavior - Auditors are more likely to implement technology when a remote superior favors implementation than when they have no knowledge of the superior’s preference. - Research study focused on managers and audit-in-charges - While the managers and audit-in-charges provided a “doer” perspective, the research study would have benefited from discussions with: - Engagement partners - CAAT Specialists

8 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Analysis of results (cont’d) - Engagement partners play a key role in defining and approving the most appropriate audit approach and budget - Will include the budget for CAATs - At this point a deciding factor may be whether or not the engagement partner supports the use of CAATs on an audit

9 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Analysis of results (cont’d) - All major firms have specialists that provide support in the development and execution of more complex CAATs for larger, more complex clients. - Since this team is highly trained, the cost of CAAT development for a specific engagement is reduced. - Similar CAAT logic can also be used for multiple engagements making the overall cost of implementation even lower. - E.g. confirmation of accounts for investment brokers. - These specialists are sometime underutilized on larger more complex engagements - The issue of when and how these specialists are inserted into the audit process is not addressed by this paper - However, it may be that the reasons why auditors don’t use CAAT specialists may be very similar to the reasons why they don’t use optional technology themselves. - E.g. risk aversion

10 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Budgets – good or bad? - Budgeting is characterized in the study as unstructured, uncontrollable, causing dysfunctional behavior - Budgets serve legitimate purposes, should be reasonable and not encourage dysfunctional behavior - Should be structured and controllable - Should be allocated to audit areas based on audit risk - Should include a consideration of investments in current years to save time in subsequent years - an “extended budget evaluation period” - Many practitioners would say they do, in fact, consider an extended budget period, but their experience in prior years has showed that the savings are not realized in year two - In some cases these individuals have been “turned away” from using CAATs and need to be re-introduced to new technologies (this is difficult) - Since this is where much of the “budget pressure” is originating from, it would be valuable to understand the predictors of their acceptance of an extended budget horizon re: implementing CAATs

11 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Cost of Audit Tools - In the study the cost of the audit tools and training is assumed to be optional based on the decision of the audit team - The study assumes engagements are charged a fee for use - In practice this does not always happen

12 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Costs of Audit Tools in Practice - Costs of many types of audit software are “sunk costs”, and not borne by each engagement team/engagement - Each laptop used by the audit staff has CAAT tool installed. - Each auditor is also trained with the use of the tool as part of ‘core training’ - Cost of the tool installation is not charged to the engagement. - CAAT tool training provided, usually via eLearning, lowering costs even more - Auditor is only trained once, and it is relevant to many engagements

13 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Costs of Audit Tools in Practice (cont’d) - Therefore CAAT tools and training cost not always a factor in implementation decisions - Advancements in sophistication of tools has also reduced training times - However - this makes this study all the more important - “if it is so easy then why are people still not using the tools?” - The applicability and value of certain interrogation tools on audit clients is still being researched

14 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Study conclusions (cont’d) Study highlights some key learnings - Need for senior management support for CAAT use - Need for adequate budget to implement CAATs - In practice there is also a significant impact of the engagement partner supporting the use of CAATs on an engagement - It would have been interesting to explore an increased role of remote management in additional to “approval” - e.g. see the impact of - remote senior management directives to audit partners and managers to invest budget hours in CAAT implementation where prudent - allocating CAAT implementation time to each target engagement and in aggregate into audit group business plans accordingly

15 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Study conclusions (cont’d) - The data that indicated risk averse auditors more readily use CAATS when under budget pressure is interesting and should be studied further - This finding may be due to the fact that risk averse auditors, in some cases, are not as adept in developing creative solutions during a crisis, therefore choosing to implement CAATS may be the only alternative they can think of - Or this could be caused by the fact that the study was during a training course when a risk averse auditor knew they would not have to follow through - Should be careful not to suggest that all firms should increase budget pressure for shy auditors!

16 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Study conclusions (cont’d) - Study excludes consideration of the impact of the need to motivate and coordinate with the client to identify and obtain the correct data files - This adds another organizational element to the implementation of audit tools - Maybe approach this with similar strategies ? - E.g. obtaining the support of remote client superiors

17 © 2005 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Study conclusions (cont’d) - Comment that data in the study “supports anecdotal evidence that auditors actually use very little audit software” seems extreme - The use of optional tools for substantive testing is less than ideal, but most of today’s audit is automated with very sophisticated tools.