What You Need to Know About Continuous Auditing
By Paul Maplesden
There’s enormous value to the auditing process. At its best, auditing provides a strong, robust and unbiased view of a business’s financials and operations. This type of manual, internal auditing is one of the best checks and balances an organization can have.
However, it’s only part of the modern auditor’s toolset. Enter “continuous auditing,” a complementary, data-analytics approach that can close some of the gaps in a more traditional internal audit approach.
The downsides and restrictions of conventional, periodic audits
Although conventional auditing is extremely helpful, it’s not perfect:
- Audits only provide a snapshot of a business at a specific moment in time. This means that new issues in the business may go undetected for many months, depending on how often you audit.
- Auditing only analyzes a subset of transactions and information. If these data points are not representative, underlying issues may be overlooked.
- Audits are very manual and require a lot of manpower. This makes them resource-intensive and limits the frequency and depth of the audit.
- Auditing is often a long process that can take weeks or months.
Continuous auditing helps you solve these issues. It provides an automated, rules-based, data-driven approach that addresses some of the shortfalls of conventional auditing.
It does this by using advanced technology, AI and data science to speed up the process. Continuous auditing results in faster identification of new issues, improved transaction analysis, more comprehensive coverage, fewer resources required for audits, and the ability to detect changes over time.
Continuous auditing is not a replacement for traditional auditing
Traditional and continuous auditing are two sides of the same coin. Continuous auditing should supplement, not replace, other auditing efforts.
Continuous auditing cannot 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.
The deep business knowledge of an internal auditor is central to both traditional and continuous auditing.
Differences between continuous auditing and continuous monitoring
Continuous monitoring allows management to react to risks that influence its risk assessment and business processes, particularly data security. Firms may be able to identify potential abuse and attacks before a breach occurs, assuring data security compliance.
Continuous auditing allows auditors to track each transaction and process in a given business system. Internal auditors may now review all transactions rather than just a sample of them, giving them more information to support compliance conclusions.
The benefits of continuous auditing
Continuous auditing uses internal audit technology to automate, review and identify certain transactions and information. This technology can be trained to provide detailed data analytics that makes sure everything is running smoothly, tracks trends and reports outliers.
Continuous auditing builds on a company culture of monitoring and ensuring compliance with policies and procedures at all times. This enables organizations to detect potential issues sooner through automated real-time reporting on critical information.
- Continuous auditing relies on internal audit technology to gather data on a constant basis.
- You will get constant feedback about the state of the organization at any given time.
- In-depth data analysis surfaces vital information quickly, and by exception, so you will know it’s important.
- You can identify and fix potential risks and issues early, instead of only identifying them after they become critical problems.
- Continuous auditing can review your entire data repository of finances, operations and transactions, giving you a much broader view.
Most importantly, continuous auditing offers a proactive view of the business’s operations, giving managers more data points with which to make informed strategic decisions.
Continuous auditing relies on strong internal audit technology
This type of auditing relies on robust, best-in-class software platforms. Continuous auditing systems will gather, process and analyze large amounts of data, quickly. This requires deep integration with transactional systems and data warehouses.
Continuous auditing technology should also feature powerful dashboards and reporting that allows auditors and other business stakeholders to easily understand the results.
This type of internal auditing technology also requires training and modeling through auditing rules and approaches.
Three approaches for continuous auditing rules
There are plenty of ways to train internal auditing technology for continuous audits. The rise of artificial intelligence and machine learning means that auditors can take advantage of sophisticated algorithms, out of the box.
But it’s also very helpful to train your auditing platform on your own rules. You can customize inputs, processing, data analysis, outputs and reports. This will give you the right high-level overview, and allow you to drill down into critical areas and identify risks and issues early.
Three areas you can use to refine continuous auditing include:
Yes/No Checks: Use these checks for simple, binary answers. This helps you identify if your controls are working correctly, and that all transactions are being processed in the right way — both in their original systems and when they’re analyzed by your internal audit technology.
Outliers: Auditors can set baseline and threshold data points for transaction inputs, outputs and processing. The platform will then analyze this data and report on problematic transactions by exception. This allows for easy identification of risks and issues, and you can adjust the sensitivity of this reporting and the decisions that follow.
Trends: Yes/No checks and outlier analysis only analyze isolated, independent transactions. Trend analysis takes this a level deeper, looking at changes over time across the entire dataset. This allows for pattern analysis, identifying small changes that cumulatively show something bigger is going on.
CaseWare’s IDEA audit platform provides best-in-class continuous auditing
Data Analytics is changing the game for auditing. When you’re analyzing data as part of a continuous audit, IDEA helps you detect fraud, identify anomalies and track trends and patterns.
“Through the development of scripts and the resulting automation of the analysis, IDEA has significantly helped us improve the efficiency of our audit activities by reducing the level of manual manipulation and analysis of big databases, and enabling us to better allocate our time and resources. With just a click of a mouse, we are able to extract transaction reports ready for review.
“Some examples of scripts we have developed are duplicate payments, payments made to inactive vendors, payment transactions with previously determined suspicious words, and journal entries posted at odd times, among others.” — Anne Duprat, Gildan Activewear
IDEA Data Analysis Software is a comprehensive, powerful and easy-to-use data analysis solution designed by audit experts. With a modern, intuitive interface and advanced analytical functionalities, IDEA accelerates data analytics, provides a more user-friendly experience, and enables deeper insights in a timely, cost-effective manner for more informed business decisions.
IDEA’s robust features allow you to:
- Analyze every transaction to uncover anomalies, wherever they may be.
- Automate analysis to pinpoint risks and issues quickly, preventing future problems.
- Import data easily, including spreadsheets, database exports, data warehouses, accounting systems, ERP systems and travel and expense applications.
- Refine continuous auditing rules to get the outputs and insights that drive robust controls and business decisions.
Get in touch with us today to learn how IDEA can revolutionize your continuous audit processes.
Paul Maplesden is a professional writer who creates extensively researched, expert, in-depth guides across business, finance, and technology. He loves the challenge of taking complex subjects and breaking them down so they are easy to understand. He can quote ‘The Princess Bride’ and believes the secret to good writing is Earl Grey tea.