Question

If you haven't heard of the term "continuous auditing" it is a little more than simply the continuous monitoring of the or a business process/transaction cycle. Continuous auditing will demand the involvement of Accounting Information Service and IT professionals. Let's explore (research) this topic and discuss what it means for us. We'll need some definitions, best practices, critical players, helpful technology (hardware/software, and, of course, specifics) for our role.

Answer 1

Solution:-

Defination of continuous auditing:-

Continuous audit or a detailed audit is an audit which involves a detailed examination of books of account at regular intervals i.e. one month or three months. The auditor visits clients at regular intervals during the financial year and checks each and every transaction. At the end of the year auditor checks the profit and loss account and the balance sheet. A continuous audit is not of much use to small firm as its accounts can be audited at the end of the financial year without much loss of time.

The Institute of Internal Auditors (IIA) states that continuous auditing is the audit-related activities that are done more continuously than activities scheduled as part of the annual audit plan.

The annual audit plan is a schedule of audits planned for any given year, but continuous auditing goes above and beyond those point in time audits and is frequently mining, reviewing, and assessing information, typically with the help of technology.

Examination and verification of a firm's financial transactions and their supporting documents, carried out daily or on fixed interval basis. Continuous-audit is performed usually by the firm's internal auditors to eliminate the year-end workload.

Examination and verification of a firm's financial transactions and their supporting documents, carried out daily or on fixed interval basis. Continuous-audit is performed usually by the firm's internal auditors to eliminate the year-end workload.

Best practices of continuous auditing:-

1. Easy to quick discovery of errors

Errors and frauds can be discovered easily and quickly as the auditor checks the accounts at regular intervals and in detail. As a auditor visits the client after a month or two or so on, the number of transactions will be small and hence, the errors will be detected easily and quickly.

2. Knowledge of technical details

Since the auditor remains more in touch with the business, s/he is in a position to know its technical details and hence can be of great help to her/his clients by making valuable suggestions.

3. Quick presentation of accounts

As most of the checking works are already performed during the year, the final audited accounts can be presented to the shareholders soon after the close of the financial year at annual general meeting.

4. Keeps the client's staff alert

As the auditor visits the clients at regular intervals, the clerks are very regular in keeping the accounts up-to-date. They will see that there is no in accuracy or frauds as it would be detected by the auditor at the next visit.

5. Moral check on the client's staff

If the auditor pays surprise visit, it will have a considerable moral check on the clerks preparing the accounts as they do not know when the auditor may pay a visit to check. Moral check will be more valuable to make staff alert and careful.

Critical players of continuous auditing:-

1. Alteration of figures

Figures in the books of account which have already been checked by the auditor at previous visit, may be altered by a dishonest clerk and the frauds may be committed.

2. Disturbance of client's work

The frequent visits by the auditor may disturb the work if the client and cause inconvenience to the latter.

3. Expensive

Continuous audit is an expensive system of audit because an auditor devote more time. So, company needs to pay more amount as the remunerations of an auditor.

4. Queries may remain outstanding

The audit clerk may lose the thread of work and the queries which s/he wanted to make may remain outstanding as there might be a long interval between two visits.

5. Extensive note taking

Extensive note taking may be necessary in order to avoid any alteration in the figures after the audit.

Continuous Auditing Techniques:-

Continuous auditing has the same objective of traditional auditing, which is to identify weaknesses in processes and opportunities for improvement. Continuous auditing cannot, however, replace the judgment and discretion of an auditor who understands the context of processes and can think about how metrics, processes, and assessments are related. But, there are three important techniques that can be used with continuous auditing to significantly reduce the time it takes to identify potential weaknesses in processes.

These techniques are not specific to continuous auditing and are some of the same tools and techniques auditors have used for years. But, they are able to be easily and quickly assessed with the help of technology.

The first is a binary check to determine whether a control is working effectively. An example of this is a system check of whether or not something was done according to policy or a predetermined requirement, such as if a payment request was approved. The inventory count example you'll read below is a binary check.

The second technique is identifying outliers. An outlier is a numerical value that is significantly different than one might expect. For example, if the average travel reimbursement for employees is $1,500, and 95% of the reimbursements are under $5,000, a continuous auditing program might look for travel reimbursements for more than $5,000. This does not automatically mean that something is wrong, but it is certainly a signal that an auditor may want to look at that transaction.

The third, and perhaps most useful technique for continuous auditing, is using analysis software to identify trends. The prior two techniques look for isolated events, specific instances when something might need to be assessed. Because technology has made it quick and efficient to analyze data, continuous auditing can keep track of trends.

To use travel expenses again, imagine if the average travel reimbursement went from $1,500 to $2,000 in one year. That could have a serious impact on an organization's financial, but may not be easily identified because managers approving those expense reports only see them one at a time. Whatever the cause for the increase in average travel expenses, understanding it by tracking these trends might help control costs.