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Case Study: 

Use of CAAT in audit of Long Term Deposit (Fixed deposit) accounts.

N.Nagarajan I.A & A.S.

Introduction:

With the recession in the industry, slowing down of the economy of the economy world over and the crash in the stock market has prompted people to look for better alternative options to invest. One safer option appealed to most is the long-term deposits. It would be a very difficult job to do analysis by using manual methods mainly because of the volume of records/ transactions involved and intricate calculations to be performed.

However auditors cannot escape criticism (which are easy to get nowadays) if the jobs are not done well. So the best way is to do 100 % audit by using some Computer Assisted Audit Tools (CAAT). There are many CAAT tools available now.

I have performed audit by using Interactive Data Extraction and Analysis (IDEA) CAAT tool.

IDEA : Is a Computer Assisted Audit Tool to perform analysis/ audit tests from or on a clients database.

Brief about the CAAT software:

Objectives of using CAAT

• Time shaving

•  Improved depth of analysis

•  Increased or wider scope of analysis / Investigation

•  Increased coverage (could cover even 100 % of transactions)

•  Better information (Extra analysis or profiling of data)

•  Image of the department, staff satisfaction

Planning:

• Determine whether CAAT is appropriate for audit

• Consider audit objectives where CAAT can be used

• Determine data required

• Arrange download of data

• Analysis of data

• Review and house keeping

How to decide whether CAAT is appropriate

• Key audit objectives and problems

• Volume and depth of information in P.C`s

CAAT is most useful in analyzing:

1. The extent of bad loans.

2. Debts or inventory position and  performance in collection

3. Used for substantive testing (testing computer based controls like matching )

4. Useful in analyzing large volume of data. (To analyze few hundred records manual procedure is good)

Download:

•        Transfer of data from host computer to your p.c.

Criteria:

• Size /Volume of data

•  Importance of fields

• Joining different files. (master and transaction).

• Procedures (ease of download)

May be simple

•  Or complex involving query multiple files etc.

•  Once downloading method is setup subsequent downloads are simple.

Benefits:

• Can be judged by objectives, volume of data, width of data

• Any special purpose such as fraud detection and investigation

• Value for money audit & special investigation

• Far more exceptional items and queries  can be identified while using CAAT.

Conclusion:

CAAT should be used where there is:

• A core purpose or reason

• Where the number of records are reasonably high

• Depth of information on the items

• And data transfer is technically feasible at reasonable cost.  

Case study:

Fixed Deposits accepted by a company has been downloaded to the auditors PC as part of audit analysis.

The necessary information obtained from the company is given below.

The data obtained is in the dBase IV format with the following fields:

Field Name                  Description:

Acctno                         Account Number

Fdnum                          Fixed Deposit Number

Nahol1                         Name of Account Holder

Deptype                       Deposit Type

I                                   Interest paid periodically

G                                 Interest paid at the end (interest and principal paid at the time

                                    Of maturity).

Depper                         Rate of Interest

Depperiod                    Period of deposit in years

Depdate                       Date of Deposit

Depamt                        Amount of Deposit

Inttype                          Interest payment type

Renewdat                     Date of renewal or closure

Refamt                         Amount refunded at the time of renewal/closure

Acclosed                      Account Closed or renewed

Premature                     Account Closed prematurely

If you are required to do the following analysis to determine the amount required to repay the deposit at a particular date ?

a) Date wise summary of deposits,

b) Effective yield of interest in the case of deposits

c) Deposit period wise summary,

d) Stratification by renew date to ascertain the amount required to refund the deposit during the next six years.

e) Check for duplicate Account Number,

f) Check for gaps in account number field.

Indicate the methods to do analysis.

Case study solution:

Ans a) Use field summarization with the key field DEP_DATE, DEP_AMT and summarise (records 248).

Ans b) Create a virtual field with equation (REFAMT-DEPAMT)*100 divided by (DEPAMT*@VAL(DEPPERIOD).AND. DEPTYPE=”G”. (838 records)

Ans c) Perform Key field summarization with DEPPERIOD ( 5 records).

Ans d) Stratification, 19960201 to 19960301 45.41 % (Use DEPDATE AND DEPAMT) (MONTHLY).and Stratification 19970101 to 19980101 47.97 % (Use REFDATE AND REFAMT), (Yearly).

Ans e) Perform duplicate key detection in the menu bar.

Ans f) Use gap detection function (shows 10 records with thirteen gaps).

Author is a senior officer of Indian Audit and Accounts Service (Supreme Audit Institution of India) at present on deputation with Supreme Audit Institution of Mauritius as I.T Audit Expert.