Transcript Discussion of Audit Automation for Implementing Continuous

Discussion of Principles and Problems of Audit Automation
as a Precursor for Continuous Auditing
Zabihollah (Zabi) Rezaee, PhD, CPA, CMA, CIA, CFE, CGFM
The University of Memphis
Presented at Symposium on Information Integrity &
Information Systems Assurance, University of Waterloo
Introduction
The four Key emerging issues relevant to the accounting
profession are:
• corporate governance and ethics
• real time, online, continuous business reporting
(XBRL)
• electronic and continuous auditing and assurance
• convergence in a global financial reporting (IFRS)
• This important symposium on Information Integrity and
Information Systems Assurance (UWCISA) addresses
two of the four emerging issues
Manual Handling of a Purchase
Order
Adapted from Datamation, 1990, © 1990 by Cahners
Publishing Co.
How EDI Functions
XBRL Operation
XML
XBRL Tagged
Data
XBRL
Specification
XBRL
Taxonomies
XBRL Controls
XBRL Instance
Documents
XBRL Standards
Board
XBRL
Reports/Style
Sheet
XBRL
Assurance
Source: Reproduced with permission from The Canadian
Institute of Chartered Accountants. 2005. Information
Technology Advisory Committee: Audit & Control
Implications of XBRL (December). Available at:
http://www.cica.ca/itac
Continuous Reporting and Auditing
• Users
of business
reports demand timely
information through continuous reporting and auditing
to make an informed discussion. Continuous reporting
refers to ongoing disclosure of the financial and
nonfinancial key performance indicators (KPI’S) on
economic, corporate governance, ethics, environmental
and social responsibility reporting
• Should the continuous reporting be mandated?
• continuous auditing and assurance plays a vital role
in the emerging business sustainability and
accountability reporting
• There is a growing demand for technology-based
audit solutions
• the development of the technology-based audits
benefit all users of business reporting
Entity Performance
Performance
Goals
Reports
Assurance
Governance
Economic
Roles and
Responsibilities
of CG
Participants
Value creation
and
Enhancement
for all
Stakeholders
CG Report
Assurance
Report
Ethical
Social
Environmental
Ethical and
Moral Values
Social Issues
regarding
Products and
Services
Performance
Codes of
Conduct
Social
Responsibility
Report
Environmental
Management
and Report
Assurance
Report
Assurance
Report
Environmental
Audit Report
Financial
Reports
Audit Report
Theme of the paper
• This paper explores the need for systematic
audit automation and integration of
formalization and business process
reengineering in the audit automation.
• The paper addresses several benefits and
problems in the process of audit automation.
Strengths of the paper
• This is a timely and interesting topic, which is of
considerable interest and importance to the
business, accounting, and academic
community.
• I commend the author(s) in following a research
agenda of particular significance to the financial
reporting process in general, and to audit
functions in particular.
• This paper is well-written and well-organized.
• Authors share their valuable experience in the
area of audit automation.
Concerns of the paper
• Motivation and justification:
 This is mentioned briefly. But it is common-sense to
implement audit automation by first transforming
manual audit processes to facilitate the automation.
• Theoretical support:
- This is descriptive paper with inadequate
conceptual or theoretical framework
 - This paper rehashes a series of papers published
 by Alles at el and others with no new ideas.
 - Is there a theory in the paper? What is it?
Concerns (Cont’)
• Contribution:
 The manuscript in its current form does not further our
understanding of the state of continuous auditing.
 The future use of XBRL in a real-time accounting
system necessitates auditors to employ continuous
auditing in performing their assurance and audit
services. Continuous Auditing (CA) should facilitate
the offering of proactive, continuous audit services
rather than reactive, after-the-fact services.
 I suggest refocusing the study from the examination
of the initial stage of CA to an investigation of
opportunities and challenges for the application of CA
post SOX and related SEC implementation rules
pertaining to acceleration of financial report filings in
various audit domains.
Concerns (Cont’)
• Exposition:
 The principles of audit automation are not well
articulated. (What are they?)
 The problems and solutions in the processes of
automation are at conceptual level. Most
solutions are obvious and conceivable without
research, or too general to have much practical
value.
Suggestions
• I suggest that the author(s) use their practical
experience in developing step-by-step
procedures for their suggested hybrid
approach to audit automation.
• Highlight the contributions to academics,
practitioners, businesses, etc.
• Enhance the paper by solid data, statistics,
and relevant theory.
Suggested Framework
Drivers and Objective of
audit automation
1.
2.
3.
4.
IT technological Department
Regulatory Reforms (SOX)
ERP&ERM
Complexity of Business Transactions
CA
CDA
CCM
Audit Automation Approach
IT infrastructure
start from scratch
conversion
Formalization and reengineering
Baseline monitoring
Implementation
Questions of interest
• What are the factors that determine the
scale, form and timing of audit automation?
• What is external auditor’s role in
implementing audit automation?
• What are the gaps between practice and
theory?
• The impact of SOX, IFRS and XBRL on
audit automation.
New Audit Software for Continuous
Assurance
• ACL services on September 14, 2004 released Audit
Exchange (AX) 2.0, business assurance platform
• AX 2.0:
1. Provides comprehensive planning, supervision, and
management of audit working papers
2. Makes evidence gathering and data analysis easy
and accessible for the entire auditing
3. Enables continuous auditing and assurance with the
ability to manage and monitor exceptions (red flags).