The Importance of

Continuous Audit and

Real Time Disclosure

Auditchain
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May 22, 2019 · 5 min read

Continuous audit and disclosure is an assurance

methodology that automates auditing tasks within
an organization or system. The method is
differentiated from technology-assisted auditing,
which is primarily human driven and involves an
auditor using a set of technology tools to complete
auditing tasks. Within an organization or system,
audit plays a key role in identifying issues related
to compliance with internal controls, disclosure
controls, data and operational integrity, and other
guidelines. To dig deeper into this type of auditing
and reporting, Jason Meyers, founder of
Auditchain and a 30-year veteran of the finance
and investment industry explains. Jason believes
there are the top five reasons why continuous
audit and real time reporting is so important.
1. Shortens Audit Cycles
Traditional auditing is a time sink. Most
organizations perform quarterly backward-looking
reviews and/or annual audits. What happens
between these audit seasons? Lots. Few
organizations actively perform auditing tasks
during these watershed periods. This slows down
the audit process significantly because issues that
occur during these periods go unnoticed and
unaddressed until the next audit cycle.
Continuous audit, on the other hand, allows an
organization to run faster and more efficiently.
There are no audit cycles. Its “clean as you go”.
It’s a view of the last 5 or 10 minutes with the
ability to generate reports containing relevant,
actionable information. In code speak, its
compiling on the fly.
2. Speeds Up Issue Resolution
As audit cycles shrink, remediation speeds up.
Consider two similar organizations, A and B — A
runs traditional audit cycles while B uses
continuous auditing and reporting. When a
compliance issue arises, organization A may not
flag it right away. Organization B, on the other
hand, will flag the issue in real time and be able to
implement corrective measures. In such a
scenario, organization A is operating at a
significant disadvantage to organization B. This
illustration shows how speed-to-resolution can
influence not only operational efficiency but also
affect competitive advantage.
3. Improves Audit Objectivity
Over a traditional audit cycle, management
collects data to the best of its ability and within its
subjective understanding of data collection
requirements. The result is highly subjective data,
says Jason Meyers, data which will then be used
to generate audit reports. This subjectivity of data
leads to subjective reports that are intended for
data-driven decision-making purposes. It is easy
to see how this is not an efficient way to run an
organization or system. Continuous auditing
improves audit objectivity and operational
efficiency by presenting all audit evidence at the
time events and transactions occur. This data can
then be subjected to compliance matrices that
generate audit queries that occur in near real
time.
4. Introduces Dynamic Customizations
Traditional auditing uses rigid “check the box”
audit procedure that is difficult to modify. For
example, when analyzing a balance scorecard
matrix, it becomes difficult to modify parameters
that are independently set at various levels of the
organization. With a continuous audit system, you
can introduce new parameters on the fly and
remain confident that the system will capture and
analyze all relevant data. Within such an audit
framework, says Jason Meyers, an organization
can keep pace with changing compliance
parameters, or respond to audit queries in a
customized and highly specific manner.
5. Enhances Reporting Granularity
Firms that use traditional auditing methods
struggle to gain granular visibility of operational
processes, says Jason Meyers. This challenge is
brought on by the widely accepted audit practice
of statistical sampling. By collecting a sample of
accounts, auditors they may not have granular
visibility of the processes they are auditing. This
trade-off is acceptable but far from perfect.
Traditional audit methodology focuses on
“materiality”, not accuracy. Continuous audit relies
on 100% transaction inclusion. By including 100%
of all system events and transactions, auditors
can offer a more detailed view of processes,
helping auditors make better recommendations to
management.
Taking Continuous Auditing a Step Further
While continuous auditing is prevalent in large
organizations that can afford the technology
investment, smaller firms too can benefit from it.
What is needed are opensource frameworks that
rely on emerging technologies such as
blockchain. Auditchain, along with DCARPE
Alliance, an accounting, audit and financial
reporting consortium, is leading the development
a decentralized continuous audit and financial
reporting protocol, says Jason Meyers, the project
founder.
Issuers of digital assets as well as the exchanges
that trade them will be the biggest beneficiaries of
continuous audit and real time financial reporting.
Traditional periodic audit is a galaxy away from
the external validation process employed by most
public blockchains. “That’s what Auditchain does”
says Jason Meyers. “It is an enterprise external
validation network”.
Comparing Traditional Audit and the DCARPE
Methodology in Blockspeak
The difference between traditional audit and the
DCARPE Assurance and Reporting Protocol can
be described in this way; In traditional audit
methodology, block times are once every 90 days.
The audit procedure includes a single external
validator acting alone, applying tentative and
conditional validation of each of the first three
blocks with a broadcast of the results of each
tentative confirmation at least 30 days following
each tentative block confirmation. The fourth
block following the first three blocks includes a
tentative confirmation of each of the previous
three blocks and includes the fourth block for a
total of four blocks with the exclusion of SegWit in
the forth tentative confirmation.
Does that sound ridiculous to our crowd? That’s
how the global capital markets have been
externally validated for over 85 years. The
DCARPE Assurance and Disclosure protocol
works vastly different. First of all, block times are
as frequent as one minute. The results are also
vastly different. In blockspeak, its a network of
external validating nodes operated by
independent CPAs and Chartered Accountants
not in cooperation or collusion with one another
providing external validation of three categories of
assurance; system and control, financial data
structure and accuracy and disclosure control
compliance. To boot, the external validators are
paid by the network, through a gamified Nash
incentive system using the AUDT Token.
If you are a forward thinking CPA or Chartered
Accountant and have an interest in acting as an
external validator, or if you are an enterprise,
technology provider or a member of the
academic, legal, accounting or regulatory
community and are interested in making
contributions, you are encouraged to apply for
membership by visiting https://dcarpe.org/join or
email [email protected]