3 Steps to Creating a Successful Continuous Auditing Process
Over the past 10-15 years, an increasing number have businesses have taken the leap and created a continuous approach to audits.
Organizations of all sizes have hastened efforts to adopt this function for a variety of functions over the past few years, but one of the prime movers for this phenomenon involves the volume and variety of data that is flowing in and out of businesses. Add in the global nature of business, for even the smallest startups, and auditing can become challenging to keep up with, to say the least.
All types of businesses, as well as all sizes of businesses, in the public and private sector are exploring the benefits and means of adopting and implementing a continuous auditing approach.
If you are considering creating a continuous approach to audits, it may help to explore what it is, how it can benefit your business, and how you can get started.
What Is Continuous Auditing?
Continuous auditing allows your standard internal audit to continue gathering relevant auditing data long after the audit has passed and continuing to the next audit. Continuous auditing gives auditors the opportunity to objectively and constructively assess the adequacy of management’s ongoing monitoring functions and identify risk areas.
Continuous auditing also cuts a clear pathway for communicating the important differences between continuous auditing and continuous monitoring, which is a risk management approach to cybersecurity. A continuous monitoring program maintains an accurate picture of an organization’s security risk profile, leverages use of automated data feeds to determine risk and ensures effectiveness of security controls.
Basically, the information gathered from management via continuous monitoring assists the auditor in assessing that monitoring in their continuous auditing. However, you do not need continuous monitoring to launch a successful continuous auditing plan.
Key Reasons That Businesses Are Creating a Continuous Approach to Auditing
Businesses are shifting over to a continuous approach to auditing because, quite simply, it is more effective. As noted above, continuous auditing processes offer IT departments greater lead time to preempt problems since auditors are able catch emerging issues on a far more frequent basis.
Continuous auditing allows businesses to focus on testing for the presence of potential risk and the effectiveness of controls that are in place. It offers a more in-depth perspective to understanding risks and controls of an organization’s system while also enhancing sampling from periodic reviews and ongoing testing results.
This process is not intended to replace traditional internal auditing. Rather, it is meant to enhance classic auditing methodology and effectiveness, so it is an ideal consideration for companies that want a more frequent, consistent and thorough view of their operations.
Here are a few more key elements that help to outline the benefits continuous auditing:
- Collects data from key processes, accounts and transactions.
- Achieves timelier and less costly compliance with important regulations, standards, policies and procedures.
- Switches from episodic, canned or cyclical reviews that allow for limited focus and insights to continuous and broader reviews that provide the opportunity for a proactive response.
- Becomes a more dynamic and live audit plan, as opposed to a traditional annual review that is static and often reactive.
- Reduces audit costs while improving effectiveness.
- Trend analysis makes it easier to identify fraud.
One great example of a practical benefit adopting and implementing a continuous approach to auditing is that businesses often use continuous auditing for performing trend analysis for matters like expense accounts. Continuous auditing results help to identify any variances or inconsistencies that might warrant further investigation before the situation worsens.
3 Steps to Help You Create a Continuous Approach to Audits
If you are considering creating your own continuous approach to audits, you may be wondering where to start. Our I.S. Partners team has come up with three basic steps to help you get things moving in the right direction:
1. Declare Your Baseline Internal Controls and Objectives—But Keep It Flexible
Your standard, day-to-day internal controls and objectives serve as your baseline to which your auditor will compare his or her findings.
These controls are essentially the same as those used for your annual internal audit, including your organization’s policies and procedures in place to promote efficient and effective operations, protect assets, and provide reliable financial information.
Further, it is important to remain open to the evolution of policies and procedures, which continuous auditing actually encourages and allows. Just like the type and amount of data under your care, and how it behaves and moves—both within and streaming in-and-out of—your policies and procedures should reflect those changes.
Your continuous audit provides you with a regular view of whether things are staying basically the same or changing dramatically. Use the results of your continuous audits to drive your policies and procedures for your internal teams and vendors, such as service organizations.
2. Establish High-Risk or Otherwise Prioritized Areas
Another step to take in preparation for launching your continuous auditing process is to identify and establish high-risk areas within your organization.
Following are just a few of the prioritized areas that you should establish:
- Critical business processes, cross-referenced with the organization’s highest risks, as designated by your organization’s leadership and your enterprise risk management program.
- Gaining a better understanding of the structure and availability of data, including all business systems and data available within them.
- Performing evaluations based on risks, using data, ratios and trending analysis.
- Assess the projected benefits that would result from including the business cycle or are in the continuous auditing process.
3. Determine the Frequency of Your Continuous Auditing Process
The frequency of your continuous audits is largely up to you and may depend considerations such as cost, benefit, risk and flow of the processes that will be audited. If you merely want to create a more streamlined auditing process to detect any trends yet unknown, you may choose to perform these audits quarterly. However, if you are concerned about a specific issue in accounting or fraud, you may choose a greater frequency.
Would You Like More Assistance Launching Your Own Continuous Auditing Process?
While using a basic framework and a set of detailed procedures, as well as the appropriate technology, a continuous approach to auditing is not difficult to adopt and implement. However, you may still need additional help and insights into the finer details that our team at I.S. Partners, LLC. can happily and confidently provide.