Discussion of Principles and Problems of Audit Automation as a Precursor for Continuous Auditing Zabihollah (Zabi) Rezaee, PhD, CPA, CMA, CIA, CFE, CGFM The University of Memphis Discussion of Principles and Problems of Audit Automation as a Precursor for Continuous Auditing Zabihollah (Zabi) Rezaee, PhD, CPA, CMA, CIA, CFE, CGFM The University of Memphis Presented at Symposium on Information Integrity & Information Systems Assurance, University of Waterloo

Introduction The four Key emerging issues relevant to the accounting profession are: corporate governance and ethics real time, online, continuous business reporting (XBRL) electronic and continuous auditing and assurance convergence in a global financial reporting (IFRS) This important symposium on Information Integrity and Information Systems Assurance (UWCISA) addresses two of the four emerging issues

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XBRLXBRL Operation XML XBRL Specification XBRL Taxonomies XBRL Instance Documents XBRL Reports/Style Sheet XBRL Assurance XBRL Tagged Data XBRL Controls XBRL Standards Board Source: Reproduced with permission from The Canadian Institute of Chartered Accountants Information Technology Advisory Committee: Audit & Control Implications of XBRL (December). Available at:

Continuous Reporting and Auditing Users of business reports demand timely information through continuous reporting and auditing to make an informed discussion. Continuous reporting refers to ongoing disclosure of the financial and nonfinancial key performance indicators (KPI’S) on economic, corporate governance, ethics, environmental and social responsibility reporting Should the continuous reporting be mandated? Should the continuous reporting be mandated? continuous auditing and assurance plays a vital role in the emerging business sustainability and accountability reporting There is a growing demand for technology-based audit solutions the development of the technology-based audits benefit all users of business reporting

Entity Performance Performance Goals Governance Roles and Responsibilities of CG Participants Economic Value creation and Enhancement for all Stakeholders Reports Assurance CG Report Assurance Report Audit Report Financial Reports Ethical Ethical and Moral Values Codes of Conduct Assurance Report Social Social Issues regarding Products and Services Social Responsibility Report Assurance Report Environmental Environmental Audit Report Environmental Management and Report Performance

Theme of the paper This paper explores the need for systematic audit automation and integration of formalization and business process reengineering in the audit automation. The paper addresses several benefits and problems in the process of audit automation.

Strengths of the paper This is a timely and interesting topic, which is of considerable interest and importance to the business, accounting, and academic community. I commend the author(s) in following a research agenda of particular significance to the financial reporting process in general, and to audit functions in particular. This paper is well-written and well-organized. Authors share their valuable experience in the area of audit automation.

Concerns of the paper Motivation and justification:  This is mentioned briefly. But it is common-sense to implement audit automation by first transforming manual audit processes to facilitate the automation. Theoretical support: - This is descriptive paper with inadequate conceptual or theoretical framework  - This paper rehashes a series of papers published  by Alles at el and others with no new ideas.  - Is there a theory in the paper? What is it?

Concerns (Cont’) Contribution:  The manuscript in its current form does not further our understanding of the state of continuous auditing.  The future use of XBRL in a real-time accounting system necessitates auditors to employ continuous auditing in performing their assurance and audit services. Continuous Auditing (CA) should facilitate the offering of proactive, continuous audit services rather than reactive, after-the-fact services.  I suggest refocusing the study from the examination of the initial stage of CA to an investigation of opportunities and challenges for the application of CA post SOX and related SEC implementation rules pertaining to acceleration of financial report filings in various audit domains.

Concerns (Cont’) Exposition:  The principles of audit automation are not well articulated. (What are they?)  The problems and solutions in the processes of automation are at conceptual level. Most solutions are obvious and conceivable without research, or too general to have much practical value.

Suggestions I suggest that the author(s) use their practical experience in developing step-by-step procedures for their suggested hybrid approach to audit automation. Highlight the contributions to academics, practitioners, businesses, etc. Enhance the paper by solid data, statistics, and relevant theory.

Suggested Framework Drivers and Objective of audit automation 1.IT technological Department 2.Regulatory Reforms (SOX) 3.ERP&ERM 4.Complexity of Business Transactions CA CDA CCM Audit Automation Approach conversion IT infrastructure start from scratch Formalization and reengineering Baseline monitoring Implementation

Questions of interest What are the factors that determine the scale, form and timing of audit automation? What is external auditor’s role in implementing audit automation? What are the gaps between practice and theory? The impact of SOX, IFRS and XBRL on audit automation.

New Audit Software for Continuous Assurance ACL services on September 14, 2004 released Audit Exchange (AX) 2.0, business assurance platform AX 2.0: 1.Provides comprehensive planning, supervision, and management of audit working papers 2.Makes evidence gathering and data analysis easy and accessible for the entire auditing 3.Enables continuous auditing and assurance with the ability to manage and monitor exceptions (red flags).