“Continuous” Will Be Key to Compliance

Companies that blend ongoing compliance with continuous auditing processes and technology accomplish more with less.

Can continuous auditing help bring companies into compliance with Sarbanes-Oxley and other regulations -- and can it do so more effectively and efficiently than alternative approaches to corporate governance? Although this question may be slightly ahead of its time, early adopters of the "continuous" concept are nodding their heads in response to it.

Coined by an academic more than 20 years ago, the term "continuous auditing" describes a broad range of approaches to both internal and external audit that enable companies to stay on top of their controls.

Paul Herring, director of business reporting, assurance and advisory services for the American Institute of Certified Public Accountants (AICPA) in New York City, sees audit options on a continuum. The traditional annual audit resides at one end of that line, while the opposite end is occupied by companies that maintain a perpetual connection with their external auditor. Herring emphasizes that a wide array of possibilities exist between those two extremes.

Miklos Vasarhelyi directs the Continuous Assurance and Reporting Laboratory at Rutgers University in Newark, N.J., and is widely considered the godfather of continuous auditing. He notes that practices under the umbrella of continuous auditing enable companies to test massive numbers of transactions for errors on a real-time basis. Companies that implement these practices can identify accounting errors at their root before they create larger problems.

"With a continuous audit process, companies don't need to wait until the end of the quarter," says Anne Marchetti, practice director for Parson Consulting in New York City. "In that way, it's very similar to a rolling forecast."

Some internal audit departments that have taken the lion's share of responsibility for monitoring their company's Sarbanes-Oxley compliance -- which chiefly translates to compliance with Sections 302 and 404 -- are seeking to blend those efforts with ongoing auditing. "To be efficient you're going to want to integrate 302, 404 and your annual audit plan," says Marchetti. Besides, she adds, the activities mandated throughout the year by companies' myriad new compliance requirements translate to a continuous auditing process anyway.