Continuous Auditing From a Public Accounting Firm Perspective

Continuous Auditing From a Public Accounting Firm Perspective November 2, 2007 Presented By: Kevin Rockecharlie (MBA, CISA) IT Assurance Manager Travis. Wolff

A New Way of Auditing Our continuous auditing approach is based on the assumption that a qualified IT resource will be sent to each client during the interim audit period to implement a data extraction procedure. The end result will provide the ability to: • • • Review the entire population (no sampling) Introduce the opportunity to recalculate account balances Allow for a comparison of financial information with industry data Identify trends, recognize exceptions and audit by exception Allow the audit staff to target higher risk areas as required by the introduction of new risk based accounting standards, SAS Nos. 104 -111

Data Requirements (ERP Business Cycles) Business Cycles • • • Inventory Fixed Assets General Ledger • Related Party Identification • Detail Reconciliation to GL & AP Aging • Vendor Concentrations (footnote) Accounts Receivable Accounts Payable ERP Database • Recalculation of AR Aging • Outstanding AR by Customer • Expediting Confirmation Process Inventory • Obsolete Inventory Identification • Labor & Overhead Rate Reasonableness • LIFO Calculations Fixed Assets • Asset Addition Disposal • GainLoss, Depreciation Calculation • Identification of Capital Leases Business Cycles • Payroll • Human Resources General Ledger Payroll HR Database • Journal Extraction (Balanced & Complete) • Population Identification • Trial Balance Verification , Cutoff Testing Payroll HR System • • Population Identification Employee Existence Payroll Distribution Reconciliation to GL Detail

Continuous Audit Workflow A new procedure will be implemented with each client that will provide for the ability to continually audit transactions throughout the year, including: 1. Identify critical client data 2. Build extraction scripts to retrieve data 3. Educate client on extraction procedure 4. Submit data to a centralized enterprise database used as an internal data repository 5. Import data into (CAAT) software for review 6. Document audit work performed

Data Workflow (CAAT) Software Client ERP / Payroll Systems Internal Data Repository Oracle SQL Server Industry Data (For Ratio Analysis) D&B S&P My. SQL Custom Reports Including SAS 99 (Fraud) RMA (Robert Morris)

Increase the Reliability of Audit Evidence using (CAAT) Software A recalculation of highly reliable audit evidence can be performed by checking the mathematical accuracy of records using software that provides for Computer Assisted Audit Techniques (CAAT) such as Case. Ware’s software. Level of Reliability High Medium Low Type of Evidence Inspection of assets Reperformance Recalculation (with Inspection of Documents Scanning Confirmation Analytical Procedures (with Inquiry & Observation ) )

IDEA Smart Analyzer Accounts Receivable Aging by due date and invoice date Accounts with balances or transactions’ exceeding credit limits Accounts with credit balances Transactions within a date range Duplicate transactions Debtor transaction Summary Accounts Payable Aging by invoice date Duplicate invoices or payments Accounts with balances or transactions with debit balances Accounts over credit limit Invoices without purchase orders Transactions within a date range Transactions posted on weekends, specific dates or times Transactions summarized by user Transaction with rounded amounts Duplicate field search Fixed Assets Fixed assets additions Asset category summary Recalculate straight line depreciation Recalculate declining balance depreciation Depreciation exceeding cost Duplicate field search Inventory Aging by receipt date Recalculate inventory balance Calculate inventory turnover ratio Zero or negative unit cost Negative quantity on hand Inventory location summary Large inventory amounts Inventory received around a specified date Last sales prices lower than unit cost Compare sales price with unit cost Duplicate field search General Ledger Out of balance journal entries Duplicate journal entries Missing journal entries Posted on weekends, specific dates or times GL Reports and Summaries by: User Account combinations Journal entries with large amounts Journal entries with rounded amounts Account number Period or source Account balances by source or period

Import Components Supported by IDEA • XML Audit File Financial • Fortune 1000 Acomba • Fortune • Avantage Progression NG • Avantage Progression 8 – 10 • Quick. Books Canada • Sage Accpac ERP • Sage Simply Accounting • • Dynacom Accounting Quick. Books ACL Data ACCPAC Advantage Series Peach. Tree Complete Accounting Simply Accounting 8 -2003 Simply Accounting 5 -7 MYOB Travis. Wolff Client Systems

Custom Reporting (SAS 99, Fraud) By having an internal data repository containing client data, SAS 99 / fraud compliance is now a byproduct of the continuous audit methodology because audit staff will be able to run predefined/automated work programs against un-manipulated client data. Firms will be able to analyze data for various fraud characteristics such as: Ghost employees Duplicate vendors Duplicate checks Favored vendors etc. . . • • •

Real World Challenges • Clients do not operate homogeneous systems • Custom extraction programs & processes must be developed • Time and resources are required for initial client data extraction

Summary of Audit Client Systems Other Applications Detail: • • • • • • Accpacc AMB Accounting American Health Tech Apogee AXYS Black Buad (Razors Edge) Business Works Cetec Club Connect CPR Plus (ERP) Fourth Shift JD Edwards Latitude LAWSON MRI MYOB QAD ROGARS Soft. Talk Storis SYSPRO Timberline Yardi

Real World Opportunities Qualified accounting resources are in tight supply. By implementing a well defined continuous audit methodology, firms will be able to: – Target high risk audit areas and focus your limited resources – Work more efficiently with each client – Retain audit staff by using cutting edge audit techniques – Increase realization of audit fees – Implement more effective fraud procedures (SAS 99)

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