The role of data authentication and security in the audit of financial statements

Abstract

Fairly presented financial statements are factual, free from bias and any material misstatements, and reflect the commercial substance of the financial transactions at a company. These statements have a standardized format and should be prepared in accordance with the applicable financial reporting framework. External audits provide reasonable assurance to the owners of the business’s on to what extent financial statements are free of material misstatement whether due to error or fraud. There is always a risk (control risk) that the business’s internal control system cannot prevent, detect or correct misstatements. The necessary sources of the financial data are handled nowadays by ERP (Enterprise Resource Planning) systems, triggered out the manual handwork. The applied ERP systems are different in companies according to the size and the business flows of the company. When it comes to a small or middle sized company, many of them use one generic system, which operates both the OLAP (analysis) and the OLTP (transaction processing) functions. There is a common risk to overwrite the master data, which can influence the reliability of financial statements. Lot of control procedures assure that the contained data are valid and show the true and fair state of the business. In this paper, we review how control procedures in an ERP system can influence the level of control risk and thus the scope and quantity of the audit procedures performed by the financial auditor.