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What are the benefits and limitations of adopting a continuous audit approach
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1. Introduction
The emergence of information technology has created the need for new business approaches involving the inclusion of electronic commerce, data interchanges and the internet (Elam, Rezaee & Sharbatoghlie 2001:150).
As technology expands and the global business community grows closer, demands are placed on the internal auditor for greater visibility into internal controls. This will enable the auditor to expand audit coverage in order to identify and mitigate risk, whilst keeping within the confines of limited resources (ACL Executive Brief 2006:1).
This essay discusses the emerging methodology in the field of auditing which can be used as a tool to benefit the internal auditor as he adapts to the changing environment.
2. A brief definition and history of Continuous Auditing
Information technology has created an intense need for new business approaches which require alterations in business practice and transactional processes (Elam, Rezaee &Sharbatoghlie 2001:150). One of these processes, which involves the internal auditor directly is the audit methodology referred to as Continuous Auditing. This can be defined as an enabling methodology for independent auditors to “provide written assurance on subject matter” after making use of audit reports collected whilst, or directly after transactions have taken place (Kuenkaikaew, Littley, Vasarhelyi & Williams 2012:1).
According to the Global Technology Audit guide, Continuous Auditing (CA) can provide the internal auditor with an opportunity to go beyond the traditional approaches to auditing which include the limitations of sampling, point-in-time-assessments and standard reports (Coderre 2005:4).
2.1 Overview
Although a broad category, Continuo...
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...r, these advances in auditing can assist the internal auditor specifically by assessing the adequacy of managerial monitoring systems and by targeting high risk areas (Coderre 2005:5).
Therefore it can be said that Continuous Auditing is an intensely useful tool for the internal auditor as its benefits outweigh its challenges. By allowing the internal auditor freedom from the banality of traditional auditing systems, the auditor can explore other outlets for critical thinking and can become better at his job (ACL Executive Brief 2006:6).
PricewaterhouseCoopers, “Internal Audit 2012—A Study
Examining the Future of Internal Auditing and the Potential
Decline of a Controls-centric Approach,” 2007
Canadian Institute of Chartered Accountants (CICA) and American Institute of Certified Public Accountants
(AICPA), “Continuous Auditing Research Report,”
Canada, 1999
As good risk management can not only help to keep company’s established value, they can also assist in capitalizing and identifying to create value. According to principle 7 recommend to have an internal audit faction, the role of internal auditor is to help the board monitor and manage risk directly.(ASX 2014).
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
Comments: Understanding the control environment is crucial to a successful internal control audit. Auditing Standard No. 5 encourages a top-down approach that starts with the auditors overall understanding of risk in the internal controls. By focusing on the entity-level controls first, the auditors can work down towards accounts and assertions. Focusing on the control environment of the entity will ...
In summary, “Internet activities are not most significant in competition, such as informing customers, processing transactions, and procuring inputs”. (Porter, 2001) significant corporate assets--skilled employees, proprietary product, and efficient logistical systems – these factors are the most important to keep competitive advantages. In fact, it is foreseeable that the Internet's evolution will come up in the future involve a shift “in thinking from e-business to business, from e-strategy to strategy”. (Porter, 2001)Only by integrating the Internet into overall strategy will this powerful new technology become an equally powerful force for competitive advantage.
Particular attention is focused on evaluation and management codes to ensure their correct use. Internal audits should be performed as part of the office routine and not just when suspicious or fraudulent behavior is detected. This is the best way to reduce the chance for an investigation and to prevent employees from having to become whistleblowers. Internal audits are necessary to determine if procedures are being coded accurately based on the documentation. They also help evaluate a coders knowledge and skill and provide feedback to the practice as to the need for training or review of the compliance plan and policies.
E-business refers to the ability of an organization to transform its processes in a manner that it conveys additional consumer values with implementation of various forms of technology, philosophies, along with a computing paradigm that correlates with the novel economy. There is an association that exists amid the internet with e-business. The internet happens to be a wider concept when compared with e-business. E-business relies on the internet economy to enhance some of its most important processes that comprise of production, customer-focused, along with internal management processes. This paper intends to provide a detailed exploration in the relationship between the internet and e-business with a further review of some of the key strategies employed by organizations for e-business that include marketing, financial services, procurement, with consumer services.
Firstly, external auditors need inquiry the tone of the top, because it can affect the culture, ethical behaviors and management of company, and also have an influence on completing expected value and internal budget. The auditors and the company negotiated the audit objectives, including the focus of audit content. The company authorized to audit staff, through a dedicated data port on the system to do real-time monitoring. We found the problem, real-time notification of the Board of Directors. Besides, auditors should estimating the significance and likelihood of occurrence of the risks that mentioned in the last part. Auditors can separately establish a risk control model based on the type of transaction and project data may exist for projects focusing on monitoring. As for the control activities, auditors should check the accuracy and completeness of transactions in information processing and comparing actual finance to budget. When data is present and anticipated significant differences, the company needs to inform the auditor investigation. During the planning phase, called by the auditors customers ' financial information, analyze the customer 's financial status, risk may exist to predict. Entry tickets for all of the company and the project should be documented, to ensure that all are kept in the company safe. For the number of items and bills, funds and stocks, the staff has
An audit of the internal workings is an assessment of the strengths and weaknesses. Conversely, the opportunities and threats is external, and a company must look outside for this, which there is less control (simmering, 2006).
Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco...
The major characters of the tradition audit are all information what is needed by auditors are on the paper and the manual calculators and without high communication technology. Auditors usually were limited by the place in the paper time. When a several people are working on the same auditing project for a client with offices in cities across the country, even worldwide, it takes a lots all time those auditors get the information which they need from the client, even there is risk paper information disappear for many reasons. on the another hand, mail paper information increase the auditing cost. The mistake caused by the manual calculators inevitably, no matter how fixed auditors concentrate on recalculate is, after all auditors are human. The global business become major in the modern business world, some example, several auditors who are in different locations are working a same auditing project, or auditors are in different city even country with the client, when there is issue among these auditors or between auditors and client, they only can communicate with each other by phone or be together and have meeting. Phone call can not make sure information been watched in the same time when the voice is talking about the issue, but having a meeting takes time and money make all people together, it increases auditing cost.
Internal auditing is a process which provides assurance and consulting service like evaluate the controls, detect the risk management and governance to an entity in order to adding value to the organization. Internal auditor provides independence and objectivity appraisal and attesting on the organization activities performance, reviewing adequacy of controls, provide information for the manager or management level to make decision, aware on the any wasteful and fraud existing in an organization and they should reviews activity continually.
Business today is inextricably intertwined with technology, from the smallest home office, to a multinational corporation with multiple monolithic legacy application. It is impossible to be in business today without confronting the issues of technology. The way we do business today is different than 30 years ago. Technology has evolved around the areas of telecommunication, travel, stock market, shipping even around our daily lives. E-commerce a system by which people can buy, sell and deal without even seeing the person on the other side has taken a front seat in improving the economy of countries around the world. Technology today has made it possible for monetary institutions to help locate the customers resources and help solve their problems at any given time through online banking. The Internet, a boon to all business, is playing a part of a catalyst; it links millions of customers to its suppliers and vice versa due to this, manufactures are able to cut the role of middlemen and are able to deal with the customers, giving them the ability for direct input from the customers about their choices and views of their product. The busi...
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
E-business and e-commerce are terms that are sometimes used interchangeably, and sometimes they are used to differentiate one vendor’s product from another. In both cases, the e stands for "electronic networks" and describes the application of electronic network technology - including Internet and electronic data interchange (EDI) - to improve and change business processes (Bartels, 2000)
Audit is a systemic and independent documented process for obtaining audit evidence and evaluating it objectively to determine the extent to which audit criteria are fulfilled (1) .