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ANALYTICSaicpa.org | cpa.com

AICPA Assurance Services Executive Committee

The mission of the AICPA Assurance Services Executive Committee (ASEC) is to assure the quality, relevance, and usefulness of information or its context for decision-makers and other users by (1) identifying and prioritizing emerging trends and market needs for assurance, and (2) developing related assurance methodology guidance and tools as needed. ASEC achieves its mission by: For additional information on the AICPA's Assurance Services Executive

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aicpa.org/ASEC AICPA Business Reporting, Assurance and Advisory Services Team The overarching role of the AICPA's Business Reporting and Assurance & Advisory Services Team is to provide leadership oversight, direction and visioning for emerging business reporting and assurance issues and initiatives committees and staff. For more information on the Business Reporting, Assurance and Advisory

Services Team initiatives, please visit

aicpa.org/AAServices AUDIT

AUDIT ANALYTICS

AUDIT ANALYTICS and CONTINUOUS AUDIT

Looking Toward

the Future17970-344_Audit Analytics_final.indd All Pages7/9/15 10:14 AM

17970-344

ANALYTICS

AUDIT and

Looking Toward

the Future

17970-344_Audit Analytics_TitlePage.indd 17/9/15 10:16 AM

Notice to Readers

Audit Analytics and Continuous Audit: Looking Toward the Futuredoes not represent an of?cial position of the American Institute of Certi?ed Public Accountants, and it is distributed with the understanding that the author and publisher are not rendering legal, accounting, or other professional services in the publication. This book is intended to be an overview of the topics discussed within, and the author has made every attempt to verify the completeness and accuracy of the information herein. However, neither the author nor publisher can guarantee the applicability of the information found herein. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Copyright © 2015 by

American Institute of Certi?ed Public Accountants, Inc.

New York, NY 10036-8775

All rights reserved. For information about the procedure for requesting permission to make copies of any part of this work, please email copyright@aicpa.org with your request. Otherwise, requests should be written and mailed to the Permissions Department, AICPA, 220 Leigh

Farm Road, Durham, NC 27707-8110.

1234567890SP198765

ISBN: 978-1-94354-608-4

NOTICE TOREADERS

This publication has not been approved, disapproved, or otherwise acted upon by any senior technical committees of, and does not represent an of?cial position of, the American Institute of Certi?ed Public Accountants. It is distributed with the understanding that the contributing authors and editors, and the publisher, are not rendering legal, accounting, or other professional services in this publication. If legal advice or other expert assistance is required, the services of a competent professional should be sought. iii

TABLE OF CONTENTS

Page

Prefacexi

Acknowledgementsxiii

Author Biographiesxv

Part I Essays

1 Continuous Auditing-ANew View3

Nancy Bumgarner, Miklos A. Vasarhelyi

1. Introduction-Continuous Assurance the Theory 3

1.1 Continuous Process Auditing4

1.2 Conceptualizing Various Elements of CA6

1.3 Guidance on Continuous Auditing13

2. The Elements of Continuous Assurance Revisited 13

2.1 Continuous Auditing Versus Continuous

Monitoring13

2.2 The Elements of Continuous Audit17

3. Information Technology and the Auditor19

3.1 Evolving Database Audit Conceptualization 22

3.2 Incremental Technological Change23

3.3 The Audit Data Standard24

4. The New Continuous Audit26

4.1 Assurance Level28

4.2 Time Focus29

4.3 Time Interval30

4.4 Data Source31

4.5 Chosen Procedure32

4.6 Choice of Assertion33

4.7 Analytic Method33

4.8 Assurance Entity35

5. Questions Regarding Some Auditing Concepts

in the Modern Environment35

5.1 Stochastic Opinion Rendering in a World

of Statistics36

5.2 New Audit Products37

5.3 Management, Control, Assurance, and

Other Meta-Processes Confusion of Concepts 38

5.4 Independence39

v

CONTENTS

Page

1 Continuous Auditing-ANew View-continued

5.5 Migration of Functions to Automation 39

5.6 The Audit Ecosystem 42

6. Conclusions 46

6.1 The New CA 47

References 49

2 The Current State of Continuous Auditing and

Continuous Monitoring 53

Paul Eric Byrnes, Brad Ames, Miklos Vasarhelyi

Introduction 53

Current Environment 54

Products and Services 55

Promotion Efforts 56

Skills Required 57

Supplemental Findings 58

Conclusions 59

References 60

Appendix-Continuous Auditing and

Continuous Monitoring in Action 60

Introduction 60

SAP Key Performance Indicator 61

DSAS/Audit Command Language 61

DSAS Database 61

Dashboard Feature 63

3 Evolution of Auditing: From the Traditional Approach

to the Future Audit 71 Paul Eric Byrnes, Abdullah Al-Awadhi, Benita Gullvist, Helen Brown-Liburd, Ryan Teeter, J. Donald Warren, Miklos Vasarhelyi

Introduction 71

ABrief History of Auditing in the United States 72

The Traditional Audit 76

Automating the Audit 77

The Future Audit 78

Embedded Audit Modules 79

Monitoring and Control Layer 80

Audit Data Warehouse 81

Audit Applications Approach 81

vi

CONTENTS

Page

3 Evolution of Auditing: From the Traditional Approach

to the Future Audit-continued

Other Future Audit Considerations82

Conclusion83

References84

4 Reimagining Auditing in a Wired World87

Paul Eric Byrnes, Tom Criste, Trevor Stewart, Miklos Vasarhelyi

Overview87

Introduction: Blue Sky Scenario88

Using Technology to Transform Auditing91

Technology Enablers91

Audit Opportunities92

More Effective Audit Data Analytics92

More Assurance95

Auditing With Big Data96

Continuous Auditing, Continuous Assurance 97

More Effective Fraud Detection98

Reducing False Positives98

Audit Process Re-Engineering: An Example99

Making It Happen100

Encouraging Audit Research and Development 100

Providing Guidance and Updating Auditing

Standards101

Encouraging and Recognizing New Resource Models 101

Blue Sky Scenario Revisited102

References102

5 Data Analytics for Financial Statement Audits105

Trevor R. Stewart

Abstract105

The Audit Context105

DAand Generally Accepted Auditing Standards 106

Audit Applications of DA108

Understanding the Entity, and Risk Assessment 108

Performing Substantive Analytical Procedures 109

Analyzing and Testing Populations of

Detailed Transactions and Balances110

Considering and Testing for Fraud111

vii

CONTENTS

Page

5 Data Analytics for Financial Statement Audits-continued

Testing the Operating Effectiveness of

Internal Control 112

Inquiry 112

ALook Ahead: Cognitive Computing in the Age

of Big Data 112

Utilizing Big Data 112

Cognitive Computing 113

Upping Our Game 114

Illustrative Examples 115

Example 1: Simple DAVisualization 115

Example 2: Financial Ratio Peer Analysis 120

Multivariate Ratio Analysis 125

References 128

6 Managing Risk and the Audit Process in a World of

Instantaneous Change 129

Paul Byrnes, Gerard Brennan, Miklos Vasarhelyi, Daehyun Moon,

Satyajeet Ghosh

Abstract 129

Introduction 130

CRMAArchitecture-Overview 130

CRMA-General Process 132

CRMA-More Detailed Considerations 133

Risk Identi?cation and Analysis 133

KRI Development and Implementation 134

Auditor Response to Changing Risk Levels 136

Management Response to Changing Risk Levels 137

Hypothetical Illustration of CRMAin Use 138

Systematic Implementation of Risk

Management and Assessment in a Process 139

Conclusion 142

References 142

Part II Case Studies

A Developing Continuous Assurance at Siemens 147

Ann F. Medinets, Jason A. Gross, Gerard (Rod) Brennan

Traditional Internal Audit 148

Continuous Controls Monitoring 148

viii

CONTENTS

Page

B Implementing Continuous Auditing and Continuous

Monitoring in Metcash-Change, Capabilities, and Culture 157

Glen Laslett, Catherine Hardy

Introduction157

Value Proposition: Identifying the Need and

Addressing the Business Challenge158

The Importance of Architecture159

De?nitions and Applications of CA/CM in Metcash 161

An Example Application: The Leave

Continuous Monitoring Routine (CMR)162

Moving Forward-Key Risk Indicators163

Challenges and Lessons Learned164

Conclusion166

References166

C Increasing Audit Ef?ciency Through Continuous

Branch KPI Monitoring169

Carlos Elder de Aquino, Eduardo Miyaki, Nilton Sigolo, Miklos A.

Vasarhelyi, Paul E. Byrnes

Abstract169

Introduction170

The Process at SAB170

Potential Enhancements171

Conclusions172

References172

D Implementing Continuous Monitoring at Vodafone Iceland 175 Mar

Introduction175

Continuous Monitoring in Vodafone Iceland176

Revenue Leakage177

Process of Monthly Financial Closing178

The Billing Process179

Fraud Monitoring181

Customer Relationship Management181

Culture Change and Enhanced Quality of

Work Flow182

Challenges and Learning183

The Future183

Conclusion184

ix

PREFACE

The world is evolving and so is the Accounting Profession (the profession). Recent technological advances offer both challenges and opportunities that will change the way CPAs operate into the foreseeable future. In order to stay on top of these new and emerging trends, we need to align the profession to continue to meet client needs and expectations. As a step in this direction, the AICPAAssurance Services Executive Committee (ASEC) Emerging Assurance Technologies Task Force Continuous Assurance Working Group has developed this book,Audit Analytics and Continuous Audit: Looking Toward the Future, which focuses on continuous auditing, continuous control monitoring, and advanced analytics. In 1999, the Canadian Institute of Chartered Accountants (CICA) and the AICPAdeveloped a research report entitledContinuous Auditing.This report discussed the viability of continuous audits, described a conceptual framework for conducting them and identi?ed signi?cant issues that auditors would likely encounter when performing this type of work.Audit Analytics and Continuous Audit: Looking Toward the Future,is intended to be an update to the CICAand AICPAresearch report,

Continuous Auditing

Audit Analytics and Continuous Audit: Looking Toward the Futureis aquotesdbs_dbs27.pdfusesText_33

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