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Computer-aided audit tools

Data analysis software

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  • 5 chapters

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CAATs have become synonymous with data analytics in the audit process.

Traditional auditing vs CAATs

Traditional audit example

The traditional method of auditing allows auditors to build conclusions based upon a limited sample of a population, rather than an examination of all available or a large sample of data.

CAATTs alternative

CAATTs, not CAATs, addresses these problems. CAATTs, as it is commonly used, is the practice of analyzing large volumes of data looking for anomalies. A well-designed CAATTs audit will not be a sample, but rather a complete review of all transactions. Using CAATTs the auditor will extract every transaction the business unit performed during the period reviewed. The auditor will then test that data to determine if there are any problems in the data.

Traditional audit vs CAATTs on specific risks

Another advantage of CAATTs is that it allows auditors to test for specific risks. For example, an insurance company may want to ensure that it doesn't pay any claims after a policy is terminated. Using traditional audit techniques this risk would be very difficult to test. The auditor would "randomly select" a "statistically valid" sample of claims (usually if any of those claims were processed after a policy was terminated). Since the insurance company might process millions of claims the odds that any of those 30–50 "randomly selected" claims occurred after the policy was terminated is extremely unlikely.

Using CAATTs the auditor can select every claim that had a date of service after the policy termination date. The auditor then can determine if any claims were inappropriately paid. If they were, the auditor can then figure out why the controls to prevent this failure. In a real-life audit, the CAATTs auditor noted that several claims had been paid after policies were terminated. Using CAATTs the auditor was able to identify every claim that was paid and the exact dollar amount incorrectly paid by the insurance company. Furthermore, the auditor was able to identify the reason why these claims were paid. The reason why they were paid was because the participant paid their premium. The insurance company, having received a payment, paid the claims. Then after paying the claim the participant's check bounced. When the check bounced, the participant's policy was retrospectively terminated, but the claim was still paid costing the company hundreds of thousands of dollars per year.

Which looks better in an audit report:

"Audit reviewed 50 transactions and noted one transaction that was processed incorrectly"

or

"Audit used CAATTs and tested every transaction over the past year. We noted XXX exceptions wherein the company paid YYY dollars on terminated policies."

However, the CAATTs driven review is limited only to the data saved on files in accordance with a systematic pattern. Much data is never documented this way. In addition saved data often contains deficiencies, is poorly classified, is not easy to get, and it might be hard to become convinced about its integrity. So, for the present CAATTs is a complement to an auditor's tools and techniques. In certain audits, CAATTs can't be used at all. But there are also audits that simply can't be made with due care and efficiently without CAATTs.

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