Auditing Standards and Continuous Auditing Lynford Graham Member, Auditing Standards Board BDO Seidman LLP.

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Presentation transcript:

Auditing Standards and Continuous Auditing Lynford Graham Member, Auditing Standards Board BDO Seidman LLP

Auditing Standards SAS 97 (Amends #50) Fraud (Amends #82) –Revenue Procedures –Management Override Risk and Materiality –Business Risk Focus Interim (Amends #71) Sarbanes-Oxley Act –Reporting on Controls

Top 5 New Accounting Terms CEO CFO EPS EBIT EBITA

TraditionalAuditContinuousAuditing ContinuousAssurance Periodic Reporting Periodic Auditing Periodic Reporting Monitoring Continuous Reporting Continuous Monitoring

CICA / AICPA “A continuous audit is a methodology that enables independent auditors to provide written assurance on a subject matter, for which an entity’s management is responsible, using a series of auditors’ reports issued virtually simultaneously with, or a short period of time after, the occurrence of events underlying the subject matter.” Not Practical

Continuous Assurance Demand ????? Costs Limitations of Accounting’s Period Concept Standards Implications – ‘Should Not Rely Exclusively on Controls’ (Risk Assessment) “Regardless of the assessed level of control risk of material misstatement, the auditor should plan And perform some substantive procedures tests for each material class of transactions and account balances” [Draft Risk Assessment Standard]

Audit Approach Comparison CharacteristicTraditional ApproachContinuous Auditing Approach Timing of Visits4 th Quarter / Post Year EndFrequent Use of Internal Reports SometimesKey Information Monitored Primary Audit Strategy Detailed Substantive TestingControls and Analytics throughout the year. Targeted sampling. Resource NeedsPost 4 th QuarterThroughout Year Control RiskCompletion of tests of controls at “preliminary.” Focus on Automated Controls

Continuous Auditing Approach System Reviews Planning Q1 Monitoring, Planning and Execution Review Q2Q3Q4 Confirmations

Trends Supporting More Continuous Auditing –“[W]e need to move toward a dynamic model of current disclosure of unquestionably material information.” Harvey Pitt Audit Resource Management Quarterly Reporting SEC shortens 10K & 10Q filing date windows ( ) Standards –Fraud (SAS 82) –Risk Assessment (SAS 55, 94) –Interim Reporting (SAS 71) XBRL –Facilitates Timely Reporting

Language in Draft Standards …auditing involves a continuous process of gathering, updating and analyzing information throughout the audit. Accordingly, the sequence of the requirements and guidance in this statement may be performed differently among audit engagements. [Proposed Fraud Standard] …an important management responsibility is to establish and maintain internal control on an ongoing basis. Management’s monitoring of controls includes whether they are operating as intended and that they are modified as appropriate for changes in conditions. [Proposed AU 319 revisions] The characteristics of routine day-to-day business transactions often permit highly automated processing with little or no manual intervention. In such circumstances, it may not be possible to perform only substantive procedures in relation to the risk. [Proposed Risk Assessment Standard]

Directions Neither Mandate nor Prohibit Continuous Auditing Best Practices /Guidance Periodic Reporting Model Trends – More Timely Auditing and Reporting Effectiveness ?????? ??????

BDO Seidman Strategic Risk Assessment Software – 2002 [Compass Version 3] BDO International Policy and Guidance Applications / Fieldtests

Example – Real Time Connection Real Estate Laplink +MS Access Mathematica, Master View, FAS 66 – Master View Industry and Asset Info. IDEA Script DB4 Timberline – Prop. Lawson – Cos.

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