The Continuous Evolution of Continuous Auditing: Insights and Issues from the Outside In

Introduction The emergence of e-commerce and electronic data interchange (EDI), growth of financial reporting using the Internet, hardware and software developments and improved user data analysis capabilities have made traditional reporting redundant in many circumstances. Traditional financial reporting takes place periodically and is essentially retrospective, offering limited relevance to users. Yet until recently, real-time reporting has been considered too costly, and in many cases, impossible. Demands for real-time reporting create demand for continuous auditing (CA). CA is " a comprehensive electronic audit process that allows auditors to provide some degree of assurance on continuous information simultaneous with, or shortly after, the disclosure of the information " (Rezaee, Ahmad, Elam & McMickle, 2002, p. 150). The concept of CA is by no means a new concept. However, the demand for and viability of CA can no longer be ignored. Discussions regarding continuous auditing began in the early 1970s with the development of electronic data processing (EDP) and research followed in the late 1980s (Groomer & Murthy, 1989). Continuous auditing provides unique implications, problems and opportunities for internal and external auditors, and members of the audit profession discuss these implications frequently. This paper intends primarily to review existing literature on CA and to provide suggestions for future research from what can be labelled as an " outside in " perspective, being the writer a sort of newcomer to the field. The remainder of this paper is organised as follows: the next three sections outline the benefits of CA, developments in information technology (IT), and obstacles in undertaking CA as identified by members of the accounting and audit profession. The fifth section summarises some of the institutional efforts towards CA. Research regarding the economic and technical feasibility of CA is provided in sections six and seven, and section eight 1 S. Zambon, University of Ferrara provides some suggestions for future research based on the gaps and limitations of existing research. Benefits of CA CA offers numerous benefits to all stakeholders. The potential benefits of CA include improved audit efficiency through reduced time and cost, and improved audit effectiveness through continuous monitoring and increased internal control focus (Rezaee et al., 2002). In addition, CA has been suggested to reduce agency costs (Kogan, Sudit & Vasarhelyi, 1999) and the cost of capital (Botosan, 1997). Improved audit efficiency and effectiveness DeWayne & Woodroof (2003) claim that CA offers the elimination of the following " audit wastes …