What is Continuous Auditing?
What is Continuous Auditing?
Continuous auditing has been defined as a methodology or framework that enables auditors to present written results on the subject matter by means of one or a series of reports issued at the same time. The ability to report on events in a concurrent environment can provide important benefits to the users of audit reports. Continuous auditing is consequently designed to enable auditors to report on subject matter in a much shorter timeframe than under the conventional model. In theory, in some environments it should be probable to reduce the reporting timeframe to provide auditing on almost an instantaneous basis. The article focuses on the reliability of continuous auditing, applicability of continuous auditing to organizations and relevance of continuous auditing to auditors.
Reliability of Continuous Auditing
While there has been noteworthy academic research on continuous auditing, as well as numerous efforts by professional standard setting bodies the world over, there has been little, if any, reporting on a constant basis. This is a consequence of a number of factors, which are inclusive of such things as demand, cost vs. benefit and technological issues. While the notion of continuous auditing has been around for many years the real practice and demand for this service has been low. At least from the external audit viewpoint, this is a consequence of the perceived cost outweighing the perceived benefit in continuous auditing. This perspective is a straight result of focusing on continuous auditing only from the financial reporting perspective.
Indisputably, the price of issuing an audit report on a complete set of financial statements each week, month or quarter would be significant and would exceed its value. Nevertheless, if the audit report only addressed definite types of related data in the financial or non-financial category, performance measures or some other information that was of significance to users and could be audited at a rational cost, then the benefits of this type of reporting may be in excess of its cost. If continuous auditing is needed to be established, organizations and auditors must start small. They should start with effortlessly auditable data that has important value to users, such as investors and the equity markets, and structure an obligation to permit an auditor to report within a timeframe that provides value to users of the data.
Applicability of Continuous Auditing to Organizations
Many organizations are not ready for continuous auditing from either a maturity level or a technological level. This is a factor concerning the maturity of their processes, systems and controls. The cost and time required to execute a continuous auditing exercise increases as the strength of an organization’s processes and controls decreases. It is observed that organizations with strong processes and controls and mature systems are better suited to a continuous auditing engagement since the auditor can place greater reliance on the processes, controls and systems to lessen the degree, nature and timing of testing to provide support to a continuous auditing opinion. For example, if an organization wanted to make public audited monthly sales and production information two days after month end, the auditor must execute all audit procedures within two days to meet the reporting deadline. On the contrary, the auditor could place dependence on the processes and controls over the systems that process monthly sales and production data and test those processes.
Relevance of Continuous Auditing to Auditors
The special skills and knowledge that auditors have are necessary for the assessment of these controls and for the performance of these engagements related to continuous auditing. This means that auditors are the solution to the issuance of any continuous auditing report; in spite its subject matter. Organizations with superior internal control environments and well-controlled information systems were well-matched for the process of continuous auditing. This conclusion was founded on the assumption that, to make continuous auditing achievable and gainful, important dependence on controls was required. The study noted that auditors would have a vital involvement in continuous auditing engagements as it was projected that many of the controls would be IT controls.
