Unit 2: EDI and risk management

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents (purchase orders, invoices, shipping notices) in a standard format between trading partners.

• Benefits: speed, fewer errors (no re-keying), lower paper and processing costs, better inventory management (JIT), stronger partner relationships.
• Limitations: high set-up costs, standards complexity, need for trading-partner agreements.

• Value-added network (VAN): a private network provider acting as an electronic post office — mailboxes, translation, security, audit trails, store-and-forward; charges per transaction.
• Financial EDI (FEDI): electronic exchange of payment-related information between businesses and banks — payment orders, remittance advice, bank statements; links with EFT (NEFT/RTGS) for straight-through processing.

• Internet EDI: EDI over the internet using AS2 protocol, web EDI forms, XML/JSON and APIs — lower cost, accessible to small firms; e-invoicing under GST is a modern government-mandated EDI.
• Impact on accounting profession: fewer paper documents, automated audit trails, continuous auditing, need for IT audit skills, controls over data integrity and authorisation, electronic evidence (Section 65B, Evidence Act / Bharatiya Sakshya Adhiniyam 2023), real-time reporting.

• Social engineering: manipulating people into revealing confidential information or bypassing controls — phishing, pretexting, baiting, tailgating, vishing; the human weakness behind many breaches; countered by awareness training, verification procedures, least-privilege access.
• Risks to confidential archival data: stored data (backups, archives) may be stolen, corrupted or lost; media obsolescence; inadequate encryption; insider access; retention law compliance — controls: encryption at rest, access controls, secure off-site/cloud backup, data retention and disposal policies.

• Audit risk = Inherent risk × Control risk × Detection risk.