Opening Rutgers WCARS session - Continuous External Auditing

The opening panel was led by Greg Shields of the Canadian Institute of Chartered Accountants (CICA) and included Deloitte's National Office Partner Tom Criste, Retired Deloitte Partner Trevor Stewart, and PhD Student Paul Byrnes. A little disappointing that more signing partners from more accounting firms were not on the panel. Perhaps that would help unlock the code on the very slow adoption of use of technology to execute external audits.

Much emphasis was on the degree of change that would be needed for the firms to seriously re-engineer their processes. My favorite quote from the session was from Tom Criste, who observes that the great increases in technology have affected how audits are documented, but not how audits are performed. The work programs for Inventory, A/R, Cash, etc., are relatively unchanged even from when he entered the profession decades ago. And because many procedures (e.g. Inventory Observation, Confirmations of A/R balances) are required by professional standards, it would be difficult to re-engineer the audit.

Mr. Criste envisions an audit where statisticians and economists could review data and help form the External Auditor's opinion. He suggests that a test audit could be performed in parallel with a traditional external audit, and that the firm could compare results and findings with each other and the client. But he says, who would want to invest that time and energy, even if the second audit was free?

If that's truly the barrier, I'd suggest to start with the users of financial statements. Would MF Global's investors and creditors like to have had any assurance provided on quarterly financial results? Probably so.

I'd advocate beginning with the end in mind, and determine the desired frequency of external audit assurance. More than annual is probably good. Daily is probably way too frequent. (What CEO wants to explain slow mid-month sales to Wall Street Analysts).

If quarterly assurance was desired, how should external audit procedures be changed? Comments welcome!