EDI is an element of electronic commerce. It demands that two or more partners in a trade agreeing to adopt a particular standard data format for conducting conventional business transactions. A principal feature is EDI's autonomy from a paper: Conventional source records in a vendor-client association, like the invoices and purchase orders, do not appear in form of paper. Another peculiarity is the compressed business cycle, leading to lower yearend balances for receivables, inventory, and payables. Often, accounting transactions and data are transferred between partners of trade by a value-added network.

Implications

The auditor must know how the entity handles business utilizing EDI and to modify audit modes accordingly. EDI generates a dependency on the system of a trading partner's computer, so its glitches and safety breaches might influence the client's system. For example, the client might be a trading partner to the supplier. The client crafts raw materials to the partner on the basis of an electronic request of the partner's inventory system. This system may contain flaws and calculate an inaccurate optimum order amount, resulting in a conflict if the client ships too many or too few raw materials. The auditor must be concerned that revenue and accounts receivable could be amplified if too many of the products were shipped or result in a contingent liability in case of too few shipped goods.

Controls, such as authentification, firewalls, and encryption, connected with communication technologies also EDI applied. The auditor may need to review the agreements on trading partner since expense recognition and traditional revenue concepts might be altered because of new business exercises. For instance, the contract might state that a buyer pays for commodities when placed into production rather than on receipt. The supplier has to depend on the purchaser's system in determining when to realize revenue.

Image Processing System

This technology entails transforming paper records into electronic form by scanning and then subsequently store and retrieve the electronic copy. In many cases, the permission for a particular transaction appears in the electronic form only.

Implications

An important issue in image processing records is:

Authenticity: Is the electronic copy truly what it implies to be-or has some alterations so it no longer is accurate? The auditor must always examine controls that grant assurance that valid and approved documents are scanned. A quality control function is required to make sure the scanned image captured lacks errors prior to the destruction of the paper document. The auditor must examine controls, such as passwords used, that restrict unauthorized modifications to the electronically stored image.

Required:

What additional implications do you think EDI and image-processing systems will have on audit evidence?