April 2001

Research opportunities in Information Technology auditing: Addressing recommendations of the Panel on Audit Effectiveness

By Bruce H. Nearon

“The profession will need to restore the historic attractiveness of auditing as a profession and convince the ‘best’ people it offers excellent long-term career opportunities,” concludes the report of the Public Oversight Board’s Panel on Audit Effectiveness (the O’Malley Panel). “This is an effort that will require a partnership among audit firms, professional societies, and the academic community.”

These recommendations can be carried out only if the Auditing Standards Board (ASB) provides the necessary initial funding for the Research Opportunities in Information Technology Auditing, ROITA, program. The purpose of the ROITA program would address the IT issues raised in the POB report. As discussed in its executive summary, rapid technological advances and changes in financial systems are forcing audit firms to reconsider their audit methods and deploy large numbers of IT specialists. Challenges include auditing financial systems that increasingly rely on complex IT systems and a dwindling number of auditors with adequate IT skills. The proposed ROITA program focuses on these issues.

The potential benefits of the ROITA program can be seen in the Peat, Marwick, Mitchell & Company’s Research Opportunities in Auditing (ROA) program, which ran from 1976 to 1993. The ROA program had a direct influence on audit judgment decision aids, audit sampling, analytical procedures, audit reports, audit risk models, and many ASB standards.

For almost 60 years, the profession has recognized the divergence of research, education, and practice. In the process, some researchers, educators, and practitioners have questioned the value of the profession’s core products—generally accepted accounting practices (GAAP) and generally accepted auditing standards (GAAS).

The proposed ROITA program, which could help sustain and advance core products, would emphasize traditional financial statement IT auditing according to GAAS. There is a large demand for GAAS audits, which are required by law, regulation, or charter for all SEC registrants, thousands of government agencies, municipalities, nonprofit organizations, and large financial institution borrowers. According to GAAS, auditors are required to understand the underlying IT systems these organizations use, yet there are no generally accepted IT auditing principles and little theory. There appears to be little basis, beyond ad hoc practice, for the panel’s recommended IT audit standards. As such, the ROITA program could be the catalyst for academics to develop and publish a framework of principles and theory for IT audit standards, an area they have long neglected.

Neither current nor foreseeable technology would disrupt the profession’s auditing franchise or its market permission to provide other services. Current and foreseeable technology can be leveraged to strengthen the viability, value, and profitability of traditional financial statement audits.

The proposed ROITA program would tackle IT issues raised by the O’Malley Panel. Among other things, the program would address increasingly complex IT systems and methods for auditing them. Funding IT audit research would lead to greater involvement by professors and PhD students and encourage undergraduates to pursue careers in the field. If more entry-level auditors possessed the basic skills needed to audit complex financial IT systems, the panel’s concerns should be allayed.

The AICPA’s Group of 100 has formed a task force to address the decline in the number of accounting students. Another AICPA task force will focus on technology which is crucial because auditors—in the Big Five as well as small firms—need help with existing technology to audit financial statements. The proposed ROITA program could provide the AICPA task forces and the ASB with the principles, theory, and concepts on which to base their recommendations and standards.

While the Big Five could implement their own ROITA programs (as with the original ROA program), the ASB could pool resources in a larger program. The ASB should approach the Big Five as well as technology corporations like GE, IBM, AT&T, Intel, Microsoft, and Cisco to obtain seed funding. To be as effective as the ROA program, the ROITA program probably would require more than the $3.8 million, adjusted for inflation, spent on the ROA. More efficient audits would increase the profits of audit firms and reduce the cost of capital for corporations. The funding would be put toward basic and applied academic IT auditing research.

The proposed ROITA program should result in new IT audit standards as well as amendments to current standards. Definitive IT audit standards would lead to more consistent IT audit procedures, reduced audit costs, and greater profits. This would, in turn, allow firms to raise entry-level compensation, making the profession more attractive to students. Greater utilization of IT in auditing procedures and increased study of IT financial systems would change students’ perception of auditing as an antiquated profession. The proposed ROITA program would also increase the effectiveness of auditing, the primary purpose of the POB panel’s recommendations.

Research in financial economics has shown that effective auditing reduces the cost of capital for market participants. Reducing the cost of capital marketwide would offer contributors to the proposed ROITA program a large return on their investment and—most important—more effective audits would benefit the public, to whom the auditing profession is most accountable.


Editor’s note: This essay is based on an address that Bruce H. Nearon, CPA, delivered to the ASB’s Audit Issues Task Force and the NYSSCPA’s Audit Standards and Procedures Committee at a liaison meeting held January 17 in New York City.



Home | Contact | Subscribe | Advertise | Archives | NYSSCPA | About The CPA Journal


The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.


©2009 The New York State Society of CPAs. Legal Notices

Visit the new cpajournal.com.