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 membership@dcarpe.org