In the past decade, rapid technological developments have led to the widespread adoption of enterprise resource planning systems. These ERP platforms not only allow different functional areas of a business to share data, but also enable businesses to generate financial information in real time.
Such developments have fundamentally altered how businesses operate, and present both challenges and opportunities for CFOs and auditors.
That’s because traditional audit methods have, to a significant extent, not kept up with these developments. Many audit procedures that are used today remain manual in nature, and are often costly in terms of both time and money. To a large degree, it is as a result of these associated costs that audits are only conducted on an annual basis today.
One emerging automation concept/technology that is gaining prominence in audit is the continuous audit.
A cost-effective method of incorporating a continuous audit might be to develop a continuous audit system that is programmed to trigger an audit after a certain number of accounts-receivable transactions have been made in the ERP system
According to the American Institute of Certified Public Accountants and the Canadian Institute of Chartered Accountants, continuous audit is “a methodology that enables independent auditors to provide written assurance on a subject matter, for which an entity’s management is responsible, using a series of auditors’ reports issued virtually simultaneously with, or a short period of time after, the occurrence of events underlying the subject matter.”
While the idea of the continuous audit is not new - it was introduced almost 20 years ago, and key conceptual elements of continuous auditing have largely remained intact since then – auditors have, up till now, faced many challenges in implementing it.
However, with rapid advancements in information technology, the growth of big data, and the increasing adoption of data analytics in business in recent years, the widespread implementation of continuous auditing by both internal and external auditors is within the reach of many companies today.
Building on traditional practices in auditing, continuous auditing introduces innovation along seven key dimensions to enable real time assurance and enhancement of the reliability of real time financial information.
Dimension 1: Continuous real-time audits
Real-time audits that occur continuously represent the goal of continuous audits. For example, a cost-effective method of incorporating a continuous audit might be to develop a continuous audit system that is programmed to trigger an audit after a certain number of accounts-receivable transactions have been made in the ERP system.
Dimension 2: Proactive audit models
Audits have traditionally been conducted on an annual basis. When audits are only conducted once a year, material errors, omissions, or fraud can often go undetected for long periods before they are flagged by an audit.
Conversely, continuous audits are conducted on a continuous basis. This would allow auditors to proactively detect and look into exceptions as they occur, rather than react to them long after they have occurred – as is frequently the case with traditional audits.
- Next page