Principles of Analytic Monitoring Miklos A. Vasarhelyi Michael
Alles Alexandr Kogan Rutgers Business School
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The continuous assurance will change 1) objectives 2) levels
and hierarchy 3) timing 4) process 5) tools 6) outcomes
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Real Time Economy
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Objective changes 1) changes in the environment and industry,
2) the existence and effectiveness of controls, 3) increased human
resource risks, 4) process continuity and integrity, and 5)
coherence between endogenous and exogenous factors:
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Effects on Controls The existence of the controls, That they
are operational, That their warnings are properly observed and
distributed, That the controls are comprehensive, covering all
relevant aspect of operational risk.
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ERPSs Integration Automation Common processes and data
Facilitate the deployment of CA by providing a common platform
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Supply, demand, technology and CA
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The continuous assurance will change 1) objectives 2) levels
and hierarchy 3) timing 4) process 5) tools 6) outcomes
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Four levels of CA
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Pensions: 4 levels of CA Level 1: Flag and extract all
transactions that pass resources between the company and its
pension fund, extract all transactions that affect pension related
ledger accounts and vouch for these transactions. Level 2: GAAP
specifies maximum and minimum contributions to pension plans as
well as ways to account for pension obligations, and other pension
related items. This level would create a logical template
evaluating the obedience for the rules of ERISA and GAAP. Level 3:
On a more analytical level, the continuous assuror can examine the
formally disclosed rules relative to pensions that allow for the
organizations actuarial estimates. Accounting standards require the
disclosure and usage of an interest rate in the assumptions about
pension estimates such as interest rate, employee related
obligations vis--vis age and years of employment, asset returns but
the standards do not require a relationship between the historical
returns of the fund and the future return assumptions. The future
will bring corporate measurement rules that link endogenous and
exogenous data in the measurement of business and its assessment.
Level 4: the auditor could make assertions at a strategic level
about the appropriateness of pension plan funding and the quality
of the management of the fund
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The continuous assurance will change 1) objectives 2) levels
and hierarchy 3) timing 4) process 5) tools 6) outcomes
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Timing issues Extensive Front end work Monitoring of system
changes Alarm based intervention Evergreen opinion (of different
forms) Automated interim work Continuous confirmation Very limited,
if any, detail testing
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The continuous assurance will change 1) objectives 2) levels
and hierarchy 3) timing 4) process 5) tools 6) outcomes
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Evidence Major change on the nature of relied evidence
Automated confirmations will take a progressively larger role Alarm
frequency and nature will be evidential matter Joint systems (with
other entities) will become prevalent
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The continuous assurance will change 1) objectives 2) levels
and hierarchy 3) timing 4) process 5) tools 6) outcomes
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Architecture
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Tools for CA Tool CategorySpecific techniqueExample / comment
Transaction MonitoringXML tags can be used to provide invisible
referentials and markings for audit usage Invisible
sequencingSequence number and time stamps can be included Invisible
signaturingElectronic signatures can be used for determining
sourcing and to increase non-deniability Invisible linkingtwo /ten
pieces of data are logically linked so they get information ally
linked Data entry editsData can be edited with specific content
knowledge I increasing its value Knowledge-based template review
(heuristic rule based) Into the process editing (after entry
Verifying extensions Intermediate total usage for controlling
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Tools 2 Continuity equationsStructural knowledge models
Industry structure knowledge models Customer behavior models
(purchasing, paying, brand switching, Physical world rules
Discriminant, nn, etc models that parameterize events but causality
or relationships cannot be determined Time series analysisVery
little if ever in auditingProcesses have overlaps, sub processes,
macro-processes, a management, aberrations, cyclicalities, reasons
for leaving steady-state Month and years are very coarse measures
Processes have their own lives and bio- rhythms KPIs based
analyses
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Tools 3 Time series analysisVery little if ever in
auditingProcesses have overlaps, sub processes, macro-processes, a
management, aberrations, cyclicalities, reasons for leaving
steady-state Month and years are very coarse measures Processes
have their own lives and bio-rhythms KPIs based analyses Cross
sectional analysisComparison across firms Compression across firm
processes Cross sectional time series analysesKPIs based
analyses
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Corporate modelingFor risk analysis For development of
standards Qualitative screening (parameter based) Transactions from
the governors mansions Transactions that the IRS is watching
Transactions by crooks Sensitive transactionsmoney laundering
Payments to management Modified audit proceduresConfirmatory
extranet Data level reliability measure Automatic transaction
rejection Automatic fraud detection
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Confirmatory Extranets
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The continuous assurance will change 1) objectives 2) levels
and hierarchy 3) timing 4) process 5) tools 6) outcomes
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Assurance Hierarchies
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Multiple Outcomes Assurance of a wider range of stakeholders
Front-end work more consulting-like (Sarbanes Oxley ???) Opinions
will be mainly negative assertions of the sort: no alarms level 5
occurred Major cultural changes needed
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Opinion with futurity We have examined the reliability and
financial reports of ABC corporation and have been engaged on a
continuous assurance engagement for the fiscal year of xxxx. We
will monitor the organizations operations and strategic
accomplishments using a wide set of analytics as described in
http://www.ca.com/analytics and other analytics we deem appropriate
and will report on an audit by exception basis when more than xx %
variance is found in operational and strategic standards or when we
deem it appropriate. This exception report will be issued to all
customers registered ( paying ) at
http://www.ca.com/analytics/customershttp://www.ca.com/analyticshttp://www.ca.com/analytics/customers