Review and Analysis of Electronic Data within CNAO
Yang Li,
IT Center,CANO
Ladies and Gentlemen,
On behalf of Mr. Wang Zhiyu, the Director General of IT Center, I will give you a
presentation about the review and analysis of electronic data within CNAO.
When we talk about the review of the electronic data, the following points are
included:
First, in order to achieve the audit target, the auditor review the electronic data. That is
one part of the substantive test when the auditor do their audit work; And the auditor
do their work with the computer instead of arounding the computer.
The object of the review is the financial data and the related operation management
data, these data is managed with the computer within the auditees’.
We do the review to evaluate the authenticity and legality of auditees’ economic
activities.It is 5 years ago that CNAO began to review and analyze the electronic data.
Because the computers are extensively used in business management and
computerized accounting has developed quickly since the 1980’s.
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Why CNAO Auditors focus on the review and analysis of the electronic data
The major change from traditional paper-based environment to computerized
environment is that in the computerized environment, both the auditors and auditees
fulfill their everyday tasks by using computers. For instance, the auditors use
computers to gather and analyze information, while the the auditees use computers to
process transactions. The importance of the review and analysis of electronic data is
determined by the current audit task of CNAO.
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we do the review and analysis of the electronic data to achieve the audit
objectives defined in the Audit Law.
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According to the Audit Law, CNAO shall audit the budget revenues and expenditures
of various departments of the State Council, as well as the financial revenues and
expenditures of state-owned enterprises and monetary organizations.
Auditors examine the records, accounting books and financial statements. The
objective of government audit is to monitor the authenticity, legality and effectiveness
of the auditees’ revenues and expenditures. No matter what technology is used, the
basic objective of audit is not affected.
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we do the review and analysis of the electronic data to crack down on false
accounting and non-compliance.
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As untrue accounting information has become a serious problem in China, relevant
management data are not reliable in many cases. Under a computerized environment,
the number of errors and omissions caused by accidental manual operation decreases
while the number of deliberate malicious action increases sharply. It is very important
to verify the correctness and validity of the auditees’ accounting data and management
information, as well as the legality of the auditee’s economic activities through
reviewing and analyzing electronic data.
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we do the review and analysis of the electronic data to maintain the
competence of auditors
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With the development of computerized accounting systems of the auditees, most of
the accounting and management information are digitalized. Many of the traditional
audit methodology are no longer applicable.
As pointed out by Mr. Li Jinhua, Auditor General of CNAO, without knowing
modern information technology, auditors will become disqualified to carry out
audit .Using computers to review and analyze electronic data is a basic skill for the
auditors to keep their audit competence.
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Now I will talk about the Features of the electronic data review practices in
China
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Auditors review and analyze electronic data for the purpose of fulfilling their audit
objectives.
There are some of the features of the practices on the basis of the responsibilities of
the audit institutions, the IT skills of the auditors as well as the auditees’ degree of
cooperation.
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First, Auditors should not log on the production system directly to perform
their review and analysis, instead, they should extract data from the
information system to their laptop or desktop.
Usually, the auditor use generalized or specialized audit software to perform
their review and analysis on their own computers.
There lie two important reasons, one is that there are a great variety of the
system used by the auditees. So it is impossible for an auditor to operate all of
them, another is that an auditor’s operation may affect the production system
of the auditees, and in case of accident, he/she may be held responsible.
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Secondly, CNAO is smoothly shifting from traditional manual audit to
computer assisted audit. Like in many other countries, auditors of CNAO
used to conduct audit under manual environment for a long time. They are
experienced in auditing paper accounting books and financial statements.
To make the shift to computer assisted audit easy and smooth, some audit
software can produce standard accounting book on screen based on the data
extracted from the auditees’ information system in accordance with the
accounting rules and procedures of China. The screen-based journals, ledgers
make it easy for the auditors to perform audit with computers and make
maximum use of their previous audit experience.
Thirdly, Review and analysis of electronic data have increased the auditors’
capability in detecting frauds and errors. Detection of frauds and errors is the
major objective for most audit assignments.
By using the electronic accounting and business information, we can perform
data inquiring and selection more efficiently and effectively. For instance,
now it is possible to scrutinize all transactions with computer. As auditors use
both the accounting information and management information, they can
easily make cross review between these information.
Audit institutions play an important role in developing audit software for
data analysis and review. Few popular commercial audit software packages
are available on the market for electronic data review and analysis.
Audit institutions develop their own software in two ways, the first is that
audit institutions raise requirements and general design and ask the software
companies to programe in accordance with the requirements.
Secondly, some audit institutions have IT personnel to fulfill all the work
including research, design, programe and test. Generally speaking, because of
the low profit ,small market, difficulties in design and implementation,
commercial software companies are not very interested in the audit software
development.
 An introduction to the audit software in China
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In July 2001, just 2 months ago, a committee on audit software reviewed the software
developed and used in the recent years in China. 18 software packages passed the
review. In general, functions of the software are as follows:
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Conversion data from the auditees’ information system
The function of data conversion enables auditors to collect data from the auditees’
information system and store them in their computers. In China, there is a great
variety of accounting systems used by different auditees because of the open market.
These systems differ in data structure and function, making it difficult to have one
audit software package for all audit projects. Two years ago, CNAO’s Nanjing
Resident Audit Office solved this problem. They developed a software named Audit
Data Extraction and Analysis
Software, which can open and import data from different systems.<6>Another
example is Central Budgetary Implementation Audit Software ,which was developed
by IT Center ,CNAO. It uses a variety of pre-defined templates to import and convert
electronic data from the major information systems of the central ministries. It also
provides a tool to build a new template for other accounting systems.
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2.Building screen-based accounting books which are similar to the
paper accounting books.
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Although the conversion may provide auditors an easy interface, it is not necessary
that all of the electronic data of various auditees is converted to paper accounting
books.
Electronic accounting books make it easier and convenient to audit. For instance,
Central Budgetary Implementation Audit Software, accounting items and
classifications are listed on the left, you can choose the specific item to browse the
corresponding records. In the course of audit, after the chief auditor finishes the job
of collecting and importing data, he can distribute them to all other auditors.
In order to enable reverse audit practice, some audit software can produce accounting
reports based on the electronic data in accordance with the standard accounting
procedure.
The accounting reports will help auditors to achieve understanding of the auditee’s
accounting system and define key audit areas. By comparing the accounting report
produced by the original system with the reports produced by the audit software,
auditors may draw a conclusion on the reliability of the auditee’s accounting system.
 3.Extracting records based on pre-defined criteria
With screen-based accounting books, auditors can perform audit in the same way as
they audit the paper accounting books. But that is not enough, to make full use of the
electronic data, audit software provides a variety of charming functions. For instance,
when an auditor choose a specific accounting item, the software can give him hints
which are concerning audit objective and procedures. Some audit software has an
interface for inquiries that enable auditors to extract records based on certain
pre-defined criteria.
Some software can summarize the auditor’s experience and then provide the function
of automatic audit.
When the auditor finds a doubtful case either under the manual audit environment or
under the automatic audit environment, he can record it into the database of the
doubtful cases. After the further check, he can determine to make a working paper or
not.
 4.Producing working paper and audit report
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Some audit software contains embeded templates, these templates are designed
according to the standard format of working paper and audit reports stipulated by
CNAO.
Any obtained evidence can be recorded in the working paper automatically and then
merge it to the audit report. With these functions, errors in manual audit report are less
likely to happen and workloads of auditors are greatly reduced.
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5.Analyzing and reviewing the gathered information
Some software also provide the function of analysis. The auditor can use
some tools such as histogram, curve or form picture of cake to analyze. For
instance, In auditing a large-scaled cigarette factory, by using audit software,
the auditors found a sharp difference between the curve of package material
consumption and that of the product output. Through further examination, the
auditors detected that the management of the auditee made a false report on
the volume of production.
 6.Library of laws and regulations
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Some software integrates a library of laws and regulations to support field audit work.
The auditors can refer to the laws and regulations easily at any time or at any place.
As a result of the use of information technology in processing electronic data, the
auditors have maintained competent in the computerized auditing environment and
government audit has become more deterrent.
Audit task can be fulfilled in a more efficient and effective way and with higher
quality and lower risks, as indicated by the following two cases.
Case one: CNAO’s Nanjing Resident Audit Office used audit software to
recalculate the depreciation of 400 pieces of equipment with value of 1.4 billion Yuan,
and an error of accounting misstatement of 16.59 million Yuan detected. It took only 5
minutes to do the whole computing process, while it will take 30 days for an auditor
to do the same work in a manual operation environment.
When the auditor combined the accounting data with the management
information, it is possible for them to detect errors and frauds that are impossible to
do in a manual environment.
Case Two: In auditing a state commercial bank, the auditors detected the fact
that a HongKong businessman deceived the bank by using revolving guarantee and
borrowed loans of 300 million from the bank.
So with the review and analysis of the electronic data, we make a sounder substantive
test , and we also prove the quality of the audit work and reduce the audit risks.