Research in continuous assurance by lonyoo

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									Research in continuous
      assurance

    Miklos A. Vasarhelyi
     Rutgers University
    AT&T Laboratories
              Tracking
 Logistics
                          Purchasing
                                            B2B Purchasing
                                            Open EDI
                                                                      Electronization
       Manufacturing
                                            Extranets
                                            Consortia                   of Business
                   Tracking     Human         Tracking
                               Resources
                                                           Sale
                                                                             Payment
 Pre-sale care                                   R&D       Web-based
              VRS              Inventory                    Cash register
              Auto Responder                                                     Web-based
                                                            Shopping carts
                                           Databases                             Credit card
                                                           Click paths
                                                                                 E-cash
                                       Artif.
                                 E-Catalog Intell.         E-Catalog
                                                                                 Micropayments
          Individual targeting
Marketing Spaming                                                                      Delivery
          Virtual communities                                     E-banking
          Customer party lines                         Finance                Bitable
                                                                  E-hedging   Non-bitable     Tracking
                                                                  E-Trading
             Advertising
                                                                                  Auditing
      Web advertising                                      Accounting
      Customization
                                            Tech support               Continuous  Continuous
      Banners
                              E-care        Lead Follows               ERPSs       Automatic Confirmation
                                            Help desk                  New Paradigms
                          CPAS OVERVIEW
                                                                          System

                                                                               System Operational Reports

                          Workstation

                                               DF-level 2
                                                            Operational              Operational
                                                              Report                   Report



DF-level 1                DF-level 1           DF-level 1
                                                                      Operational
                                                                        Report



                                                                           Filter



                                               Alarm
             DF-level 0

                          Data Flow Diagrams
                                                                          Database
      Reports                Analytics            Metrics
AuditMaster Premier V5.0 Demo
                History
 CPAS effort and embedded modules (ITF) –
  1987
 AICPA /CICA monograph 1999

 Continuous systrust 2001

 Panel next ?????

 Much academic interest since 1999 (3
  symposia, this year in the UK)
                                           Peer review
                                             process
                          Auditor
   Regulators

                                           Secondary assurance
                       MC layer     MC Provider

          Principals                   Company

Stakeholders entity
 -Pension Fund
 -Employees(Union)
 -LT Charts
 -LT Suppliers
 -Bank
 -Insurance Cos.
Monitoring,             Regulators                     Peer review process
control and
                              Fifth harmonic- audit of the audit process
 assurance
                      Assurance of the assurance process
                               Fourth harmonic- control of the audit process
                                            Verifies, the metrics and
                                            the control
         Assurance process                     Third harmonic- assurance process
                      Feedback loop of action

                     Management action on discrepancy

                    Comparison of actual and model
       Discrepancy detected      Second harmonic- control process

 Standard            metrics
                                         First harmonic- operational process
                                                                       Measurable
                                                                       Processes
                Why not?
 “my problems are not with transactions but
  with legal exposures and environmental
  effects”
 “this is not auditing, it is supervision”

 “this opens substantial data for the
  competition”
     Some Research Studies
Researcher          Research
Rob Nehmer          Applied CA cost/benefit
                    with Major corp.
Anne Pushkin        Company Strategies &
                    CA
David Tick          Network monitoring at
                    The NY Fed
Bonnie Morris       CA for a security
                    application of a bank
Roger Debreceny &   Embedded audit modules
 Company                  Problem                                          Continuous Assurance Potential

ENRON                     SPEs                                             Most likely the moves of Liabilities to SPEs would
                                                                           be flagged and require director’s endorsements

                          Trading by executives                            More difficult to detect particularly if on the name
                                                                           of family and associates, a third party trading
                                                                           monitoring system should be established by the
Adelphia Communications                                                    stock-exchanges for monitoring
                          Loan guarantees to directors                     Difficult to detect if an executive signs for the
                                                                           company without informing directors
                                                                           Specific rules by bank regulators for loan guarantee
                                                                           monitoring and their continuous monitoring would
                                                                           resolve this problem
Quest                     Round-tripping                                   Specific transaction logging and algorithmic
                                                                           matching would have easily identified even
                                                                           modified amounts and date lapping
Merck                     Booking not collected income by Medco            Logs and cash matching would have shown the
                                                                           huge recognition differences
Global Crossing           Round-tripping                                   Specific transaction logging and algorithmic
                                                                           matching would have easily identified even
                                                                           modified amounts and date lapping
                                                                           Continuity equations would have further flagged
WorldCom                                                                   production and sale inconsistencies
                          Capitalization of operating charges              Vendor maps and summarization with continuity
                                                                           equations would have pointed out the problem,
                                                                           changes on rules of internal control are needed for
Halliburton                                                                transaction reclassification
                          Adopting more aggressive policies last year      Continuous monitoring of ratios would show
                          about recording sales and postponing potential   dramatic change, internal control rules should
                          losses                                           require this being pointed to audit committee as a
XEROX                                                                      level 4 alarm
                          Xerox's accounting for leases of its copiers,    Continuity equations would point out timing
                          early recognition of profits                     discrepancies specially if methods changed

                          Inappropriate set up reserves                    Analytics should show this but CA does not
                                                                           necessarily improve the situation without
                                                                           corresponding controls
                          Accounting for interest income                   Continuity equations would point out timing
                                                                           discrepancies specially if methods changed

								
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