As one of the major techniques of assurance processes, auditing has been mandatory for public companies since the 1930s. Traditionally, audit tasks are performed in a backward manner. A solution for this issue is called contemporary auditing or predictive auditing, which is a forward-looking audit technique that can take assurance processes to the next level. However, before we can talk about predictive auditing, we need to get some knowledge about continuous auditing.
Continuous Auditing is one of the main auditing automation techniques, which is aiming at helping auditors to speed up their work processes by implementing advanced technologies.
According to CICA and AICPA, continuous Auditing is defined as:
“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.”
It is obvious that, with the help of continuous auditing, the workload of the tedious and repetitive audit tasks can be greatly reduced. Thus, auditors are able to, continuously, rather than periodically, put attention on real world business risks.
Based on the result of predictive analysis, future auditors are able to predict possible outcomes for given parameters. The idea behind predictive auditing is putting characteristics of future scheduled transactions into statistical models, which are built on a large quantity of historical normative transactions. Since the model is all about being “standard”, depending on the requirement of significance level, it can accurately isolate suspicious financial and accounting behavior of a company or individual. In this way, by reading the result of the model, auditors can easily find out the suspicious transaction and perform further processes to dig out the truth focusing on these transactions.
Another advantage of predictive auditing is that it is able to overcome the geographical barrier. The world is not using the same accounting system, and each country has its own accounting regulations. Since the globalization in the business world is taking place rapidly, the need of accounting professionals who understand multiple accounting systems are huge. However, what if the predictive auditing model can adjust to different business environments? Since the major accounting systems in the world shares more in common, theoretically, the adjustment can be achieved by changing specific components, even some parameters, of the model. After seeing this, we can expect a huge reduction in the cost of auditing.
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