New international guidance helps auditors address e-commerce risks

As the increasing use of the Internet for business-to-consumer, business-to-business, business-to-government and business-to-employee e-commerce is introducing new elements of risk that need to be considered by accountants when planning and performing the audit of financial statements.

To assist auditors in identifying and assessing these risks, the International Federation of Accountants (IFAC's) International Auditing Practices Committee (now International Auditing and Assurance Standards Board - IAASB) has issued a new practice statement, Electronic Commerce - Effect on the Audit of Financial Statements.

"Growth of Internet activity without due attention by the entity to those risks may affect the auditor's assessments of those risks," points out Dietz Mertin, IAASB chairman. "For example, an entity's e-commerce strategy may affect the security of the financial records and the completeness and reliability of the financial information produced."

This new International Auditing Practice Statement (IAPS) helps auditors address e-commerce issues by focusing on the following:

The level of skills and knowledge required to understand the effect of e-commerce on the audit;

The extent of knowledge the auditor should have about the entity's business environment, activities and industries;

Business, legal, regulatory and other risks faced by entities engaged in e-commerce activities;

Internal control considerations, such as an entity's security infrastructure and transaction integrity; and

The effect of electronic records on audit evidence.

The guidance is particularly relevant to the application of three International Standards on Auditing (ISAs): ISA 300, Planning, ISA 310, Knowledge of the Business and ISA 400, Risk Assessments and Internal Controls.

"While this statement has been written for situations where an organisation engages in commercial activity over a public network such as the Internet, much of the guidance it contains can also be applied when the entity uses a private network," explains Mr Mertin. "Similarly, while much of the guidance will be helpful to accountants engaged in auditing entities organised primarily for e-commerce activities (often called "dot.coms"), it is not intended to deal with all audit issues that would be addressed in the audit of such entities."

Electronic Commerce - Effect on the Audit of Financial Statements may be downloaded from the IFAC Web site(www.ifac.org/store) for a fee of US$22 (Lm10).

The IAASB is an IFAC committee that works to improve the uniformity of auditing practices and related services throughout the world by issuing pronouncements on a variety of audit and assurance functions and by promoting their acceptance worldwide.

IFAC is the global organisation for the accountancy profession. Its mission is to develop and enhance the profession to enable it to provide services of consistently high quality in the public interest.

Its current membership consists of 156 professional accountancy bodies in 114 countries, representing more than 24 million accountants in public practice, education, government service, industry and commerce.