Continuous Auditing

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Continuous Auditing

• From a Public Accounting Firm Perspective
• November 2, 2007

Presented By Kevin Rockecharlie (MBA,CISA) IT
Assurance Manager TravisWolff
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A New Way of Auditing
Our continuous auditing approach is based on the
assumption that a qualified IT resource will be
sent to each client during the interim audit
period to implement a data extraction procedure.
The end result will provide the ability to

• Review the entire population (no sampling)
• Introduce the opportunity to recalculate account
  balances
• Allow for a comparison of financial information
  with industry data
• Identify trends, recognize exceptions and audit
  by exception
• Allow the audit staff to target higher risk areas
  as required by the introduction of new risk based
  accounting standards, SAS Nos. 104-111

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Data Requirements (ERP Business Cycles)
Accounts Payable

• Related Party Identification
• Detail Reconciliation to GL AP Aging
• Vendor Concentrations (footnote)

• Business Cycles
• Accounts Payable
• Accounts Receivable
• Inventory
• Fixed Assets
• General Ledger

Accounts Receivable

• Recalculation of AR Aging
• Outstanding AR by Customer
• Expediting Confirmation Process

ERP Database
Inventory

• Obsolete Inventory Identification
• Labor Overhead Rate Reasonableness
• LIFO Calculations

Fixed Assets

• Asset Addition\ Disposal
• Gain\Loss, Depreciation Calculation
• Identification of Capital Leases

• Business Cycles
• Payroll
• Human Resources

General Ledger

• Journal Extraction (Balanced Complete)
• Population Identification
• Trial Balance Verification , Cutoff Testing

Payroll \ HR System

• Population Identification
• Employee Existence
• Payroll Distribution
• Reconciliation to GL Detail

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Continuous Audit Workflow
A new procedure will be implemented with each
client that will provide for the ability to
continually audit transactions throughout the
year, including

• Identify critical client data
• Build extraction scripts to retrieve data
• Educate client on extraction procedure
• Submit data to a centralized enterprise database
  used as an internal data repository
• Import data into (CAAT) software for review
• Document audit work performed

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Data Workflow
(CAAT) Software
Client ERP / Payroll Systems
Industry Data (For Ratio Analysis)
Custom Reports Including SAS 99 (Fraud)
DB
RMA (Robert Morris)
SP
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Increase the Reliability of Audit Evidence using
(CAAT) Software
A recalculation of highly reliable audit evidence
can be performed by checking the mathematical
accuracy of records using software that provides
for Computer Assisted Audit Techniques (CAAT)
such as CaseWares
software.
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IDEA Smart Analyzer
Accounts Receivable Aging by due date and invoice
date Accounts with balances or transactions
exceeding credit limits Accounts with credit
balances Transactions within a date range
Duplicate transactions Debtor transaction
Summary Accounts Payable Aging by invoice date
Duplicate invoices or payments Accounts with
balances or transactions with debit balances
Accounts over credit limit Invoices without
purchase orders Transactions within a date range
Transactions posted on weekends, specific dates
or times Transactions summarized by user
Transaction with rounded amounts Duplicate
field search Fixed Assets Fixed assets additions
Asset category summary Recalculate straight
line depreciation Recalculate declining balance
depreciation Depreciation exceeding cost
Duplicate field search
Inventory Aging by receipt date Recalculate
inventory balance Calculate inventory turnover
ratio Zero or negative unit cost Negative
quantity on hand Inventory location summary
Large inventory amounts Inventory received
around a specified date Last sales prices lower
than unit cost Compare sales price with unit
cost Duplicate field search General Ledger Out
of balance journal entries Duplicate journal
entries Missing journal entries Posted on
weekends, specific dates or times GL Reports and
Summaries by User Account combinations Journal
entries with large amounts Journal entries with
rounded amounts Account number Period or source
Account balances by source or period
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Import Components Supported by IDEA

• XML Audit File Financial
• Fortune 1000 Acomba
• Fortune
• Avantage Progression NG
• Avantage Progression 8 10
• QuickBooks Canada
• Sage Accpac ERP
• Sage Simply Accounting

• Dynacom Accounting
• QuickBooks
• ACL Data
• ACCPAC Advantage Series
• PeachTree Complete Accounting
• Simply Accounting 8-2003
• Simply Accounting 5-7
• MYOB

TravisWolff Client Systems
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Custom Reporting (SAS 99, Fraud)
By having an internal data repository containing
client data, SAS 99 / fraud compliance is now a
byproduct of the continuous audit methodology
because audit staff will be able to run
predefined/automated work programs against
un-manipulated client data.

• Firms will be able to analyze data for various
  fraud characteristics such as
• Ghost employees
• Duplicate vendors
• Duplicate checks
• Favored vendors
• etc...

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Real World Challenges

• Clients do not operate homogeneous systems
• Custom extraction programs processes must be
  developed
• Time and resources are required for initial
  client data extraction

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Summary of Audit Client Systems

• Other Applications Detail
• Accpacc
• AMB Accounting
• American Health Tech
• Apogee
• AXYS
• Black Buad (Razors Edge)
• Business Works
• Cetec
• Club Connect
• CPR Plus (ERP)
• Fourth Shift
• JD Edwards
• Latitude
• LAWSON
• MRI
• MYOB
• QAD
• ROGARS

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Real World Opportunities

• Qualified accounting resources are in tight
  supply. By implementing a well defined continuous
  audit methodology, firms will be able to
• Target high risk audit areas and focus your
  limited resources
• Work more efficiently with each client
• Retain audit staff by using cutting edge audit
  techniques
• Increase realization of audit fees
• Implement more effective fraud procedures (SAS
  99)

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For more information