Continuous Auditing: Finance and Accounting System Analysis and Report

This report delves into the concept of continuous auditing, a modern approach in finance and accounting that leverages real-time accounting systems. It highlights the shift from manual processes to electronic transactions, enabling immediate data generation and analysis. The report discusses how continuous auditing involves testing transactions as they occur, utilizing tools like embedded audit modules and software applications such as IDEA. It emphasizes the benefits of this approach, including comprehensive transaction testing and timely error correction, and the ability to align test frequencies with system activity. The report also points out the inevitable shift towards continuous auditing as the standard practice, due to its efficiency, reliability, and comprehensive coverage compared to traditional audit methods. The report references key sources, like the AICPA and studies on internal auditing within real-time accounting environments.

Continuous auditing is a recent development in the field of audit, which involves gathering and analysis
of data and information from the client’s system on real time basis. It is driven by the fact that most of
the companies nowadays are using real-time accounting systems (RTA), which have replaced manual
accounting processes and transactions are now processed electronically, simultaneously leading to
generation of account ledgers as well financial statements. Continuous auditing involves testing the data
being generated, at the same time, as it gets generated, using pre-defined characteristics, that system
maps each transaction against and provide the outliers to the auditor, to dwell deep into.
Continuous auditing involves performing the substantive test for the details of transactions, account
balances and performing the analytical procedures and completing the audit, all during the same time,
as the transactions are posted in the real-time accounting system of the client. Continuous auditing
involves application of various auditing tools, such as embedded audit modules, integrated test facilities,
etc. It also includes use of software application programs, such as Interactive Data Extraction and
Analysis (IDEA).
Continuous auditing brings lot of benefits that didn’t exist in the manual auditing, i.e. 100% testing of
transactions, testing of transactions as soon as they are generated, leading to early correction of
transactions with errors. It also allows the auditor to align the frequency of tests with the frequency of
transaction being entered into the system.
Since, all the entities are moving to real-time accounting systems, the continuous auditing techniques
would replace the manual audit procedures in the coming times, as continuous audit of transactions is
faster, easier, more reliable and provide a coverage much beyond what could have been achieved by the
traditional audit.
References:
American Institute of Certified Public Accountants (AICPA) (1980), Evidential matter: Statement on
Auditing Standards (SAS) No. 31, August
Rezaee, Z., Ford, W.F. and Elam, R. (2000), “The role of internal auditor in a real time accounting
system”, Internal Auditor, April pp. 62-7.