If auditing critical business processes is a good thing, more auditing must be a better thing. That, at least, is the admittedly oversimplified thinking behind the relatively new and fast-growing trend of continuous auditing procedures that are increasingly being implemented in organizations around the world.
What Is Continuous Auditing?
Continuous auditing best practices do not require full-scale, in-depth audit exams every business day of the year. Rather, continuous auditing is the ongoing, automatic performance of audit-related activities on a ceaseless basis. In short, whenever business is being done, constant control assessments and risk assessments should also be done. Continuous auditing makes perfect sense in our modern, digital age when threats come at a business from around the world at the speed of light.
Depending on the number of organizational units, business processes or transactions to be examined, continuous auditing can seem like a daunting, almost impossible task. Like all risk mitigation tasks, continuous auditing policies take time and effort to put in place, but if it’s done right and common mistakes are avoided, the rewards will be great.
Advantages of Continuous Auditing
Quick Correction of Mistakes
It stands to reason that the faster mistakes are discovered, and the sooner risks are identified, the sooner problems can be fixed.
Faster Reporting
If numbers, results and efficiency are all verified on an ongoing basis, books can be closed, accounts can be balanced, and reports can be issued almost immediately upon request.
Shorter and Less Frequent (Full-Scale) Audits
Large, comprehensive audit exams involve lots of time, money and personnel. In other words, full-scale audits, while important and necessary, are exceedingly expensive. If basic audit procedures are being conducted continuously, regular, full audits are bound to be more efficient and more effective.
A Motivated Staff
Most risk, audit and accounting professionals have noticed that employees tend to be very focused and efficient during an audit examination. Continuous auditing creates a mild version of the audit atmosphere all the time. Management and employees at all levels are motivated to perform when they know they’re being watched.
Informed Decision-Making
Continuous auditing can (if desired) produce continuous audit reports. Officers and management will have more up-to-date information they can use to make better, more timely decisions.
Profit Potential
If continuous auditing turns up an expensive error or a costly lack of internal control, correcting it instantly “on the fly” will yield instant revenue and profit.
Some Other Benefits
- Increased testing coverage
- Greater visibility
- Establishment of fraud testing environment
Challenges to Consider
Initial Costs
The most obvious and onerous drawback to beginning a continuous auditing program is the initial startup costs. This reality cannot and should not be denied. In the end, however, following a continuous auditing template will be a money-saving measure for the reasons noted above.
Over-Reliance on the Audit
Management should be aware that there is a danger of staff depending too much on the continuous audit functions to catch and correct mistakes. Supervisors need to guard against employees taking a languid approach to their work knowing that the audit staff will fix things when they mess up.
Seeming Lack of Results
If continuous auditing works the way it should, problems, errors and faulty controls will be found and corrected right away. After a relatively short period of time, a continuously audited organization tends to run smoothly. However, if corporate officers and upper management forget or discount the value of the program, it can reintroduce continuous auditing risks through neglect or defunding.
Making the Transition
The benefits of making continuous auditing a best practice (standard policy) should by now be highly evident. The question becomes, how do you avoid the pitfalls and make the transition process successful?
We suggest a state-of-the-art, professional and comprehensive guide. An easy-to-use, plug-and-play, continuous auditing template: The KnowledgeLeader Continuous Monitoring and Auditing Guide.
KnowledgeLeader is an industry-leading, internet-based provider of risk, audit and accounting tools, audits, guides and training (and more). We strive to be on the cutting edge of our industry. That’s why our expansive library includes over 190 items related to the emerging trend of continuous monitoring and auditing.
Our Continuous Monitoring and Auditing Guide is a resource we recommend to accounting professionals who are deciding or have decided to make the transition to ongoing audits.
The Guide
We decided to create this guide as a PowerPoint presentation because of the easy-to-navigate, easy-to-present and easy-to-review characteristics of that platform. An incredible amount of direction and information is packed into 21 slides that include numerous charts, graphs and illustrations. It will grab the viewers’ attention and keep them focused on the task at hand.
The guide starts with a positive “end game” in mind. After a review and introduction, as well as the definition of key terms, the six elements of a successful continuous audit program are listed and expanded upon. They are as follows:
- Strategy and Policy
- Keeping the Focus on What Matters
- Fraud, Waste, Abuse, Compliance, Performance and Risk
- The Process
- Definition of Process
- Identification of Inputs
- Necessary Activities (Action Steps)
- Identification of Outputs
- The Reporting Process
- The People and Organization
- Obtain “Buy In” (Executive Support) From Management
- Identify Stakeholders
- Understand Stakeholder Needs
- Solidify the Support of Stakeholders
- Identify Potential Obstacles
- Management Reporting
- Data Requirements
- The “Who, What and Where” of the Data
- Data Requests
- Timeline
- Source
- Background
- Data Validation and Reporting
- Define Reporting Requirements
- The Audience
- Anticipate Questions
- Summarizing Results
- Chain of Command (for Conclusions and Actions)
- Methodologies
- Scope and Tolerances
- Testing Procedures
- Building Applications
- Queries
- Procedures
- Applications
- Testing Results
- Systems and Data
- Data Capture
- Procurement (Payment)
- Sales (Cash Applications)
- Payroll
- Ledgers
- Financial (Bank) Information
- External Databases
- System Interfaces
- Capturing Automated Data
- Audit Tools and Their Capabilities
- Efficiency (Justifying Costs)
Building the Program
To make a fairly complex process as easy as possible, our guide breaks up the implementation process into three easy-to-follow phases.
The first phase involves visualizing and documenting a successful outcome and getting critical “buy-in” (support and financing) from all the important players.
Phase two is composed of adjusting the plan according to various inputs (budget and management directives), deployment of the program and monitoring the rollout for any initial problems.
Phase three is all about ongoing improvements to the program to make it more efficient and effective. We call this phase, “better, stronger and faster.”
Learn From a Case Study
To enhance training and understanding, our Continuous Monitoring and Audit Guide contains a realistic case study.
The case study involves a (hypothetical) multibillion-dollar energy company that was experiencing inconsistent financial results.
The favorable results of launching a continuous auditing program were that the firm identified multiple instances of fraud and quelled high staff turnover. The details of the study include 20 different examples of how they achieved success. The case study alone is an invaluable resource.