16 Jan 2020

What Is a Continuous Audit?

A continuous audit is an internal process that examines accounting practices, risk controls, compliance, information technology systems, and business procedures on an ongoing basis. Continuous audits are usually technology-driven and designed to automate error checking and data verification in real-time. A continuous audit driven system generates alarm triggers that provide notice about anomalies and errors detected by the system.

KEY TAKEAWAYS

  • Continuous auditing requires the ongoing assessment of accounting practices and risk controls.
  • This auditing practice helps continually assess the effectiveness of controls.
  • Continuous audits are most often used when new procedures are implemented as a way to track effectiveness.

Understanding Continuous Audits

An internal auditing department normally has a set schedule to do its work, whether monthly, quarterly, semi-annually or annually. An individual or team spends time in each area to gather information, review and analyze data, and publish their reports for management and the audit committee of the Board of Directors. A continuous audit is implemented via technology, and these mini logs assist the internal auditor(s) in between their regularly scheduled formal audits.

Continuous auditing is not to be confused with computer-aided auditing. In computer-aided auditing, the auditor is simply being assisted by technology, such as spreadsheets to complete a periodic audit. Computer-aided auditing is driven solely by the auditor, while continuous auditing is meant to run automatically at regular tight intervals.

Special Considerations

Many internal audits are done months after a business activity has occurred. These types of audits for certain processes are too long to be of real value. Continuous auditing is done to allow for risk assessments and control checks more frequently. Continuous audits are most often used when a new standard or procedure is being implemented. The continuous nature of the audit allows for more effective assessments.

Advantages and Disadvantages of Continuous Audits

A continuous audit is beneficial in flagging unusual or non-compliant activity in multiple areas of a firm, and ensuring that established procedures are being followed. For example, in the accounts payable department, the continuous audit system could stop an unauthorized amount from being sent to a vendor. In the accounting or legal department, it can verify that a required filing to the Securities and Exchange Commission (SEC) is set to be sent before a deadline.

The continuous audit function can monitor whether the firm’s computer networks have been prepared for potential cyberattacks. These and more tasks of the continuous audit promote efficiency in an organization and minimize or eliminate entirely violations of procedures or processes that could expose it to monetary or legal liability. The downsides to a continuous audit are initial set-up costs and perhaps an over-reliance on the system in some areas of a firm’s operations, where in fact human intervention would be called for.


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This content was originally published by Investopedia. Original publishers retain all rights. It appears here for a limited time before automated archiving. By Investopedia

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