What is 'Continuous Audit'

Continuous audit is an internal process that examines accounting practices, risk controls, compliance, information technology systems and business procedures on an ongoing basis. Continuous audits are usually technology-driven and designed to automate error checking and data verification in real time. A continuous audit driven system generates alarm triggers that provide notice about anomalies and errors detected by the system.

BREAKING DOWN 'Continuous Audit'

An internal auditing department normally has a set schedule to do its work, whether monthly, quarterly, semi-annually or annually. An individual or team spends time in each area to gather information, review and analyze data, and publish their reports for management and the audit committee of the Board of Directors. A continuous audit is implemented via technology, and these mini logs assist the internal auditor(s) in between their regularly scheduled formal audits.

Continuous auditing is not to be confused with computer-aided auditing. In computer-aided auditing, the auditor is simply being assisted by technology, such as spreadsheets to complete a periodic audit. Computer-aided auditing is driven solely by the auditor, while continuous auditing is meant to run automatically at regular tight intervals.

Pros and Cons of a Continuous Audit

A continuous audit is beneficial in flagging unusual or non-compliant activity in multiple areas of a firm, and ensuring that established procedures are being followed. For example, in the accounts payable department, the continuous audit system could stop an unauthorized amount from being sent to a vendor. In the accounting or legal department, it can verify that a required filing to the Securities and Exchange Commission is set to be sent before a deadline. The continuous audit function can monitor whether the firm's computer networks have been prepared for potential cyber attacks. These and more tasks of the continuous audit promote efficiency in an organization and minimizes or entirely eliminates violations of procedures or processes that could expose it to monetary or legal liability. The downsides to a continuous audit are initial set-up costs and perhaps an overreliance on the system in some areas of a firm's operations, where in fact human intervention would be called for.

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