Design and evaluation of an advanced continuous data level auditing system: A three-layer structure |
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| Institution: | 1. School of Management, Clark University, Worcester, MA, 01610, United States;2. School of Accounting, Southwestern University of Finance and Economics, Sichuan, 611130, PR China;3. Anisfield School of Business, Ramapo College of New Jersey, Mahwah, NJ, 07430, United States;4. Rutgers Business School, Rutgers, the State University of New Jersey, Newark, NJ, 07102, United States;1. University of Waterloo, School of Accounting and Finance, 200 University Ave. W, Waterloo, ON N2L 3G1, Canada;2. University of Guelph, Gordon S. Lang School of Business and Economics, 50 Stone Rd East, Guelph, ON N1G 2W1, Canada;3. University of Calgary, Haskayne School of Business, 2500 University Dr NW, Calgary, AB T2N 1N4, Canada;1. Sustainable Engineering, Accounting and Law Group, Centre for Markets, Values and Inclusion, UniSA Business, University of South Australia, Adelaide, SA 5000, Australia;2. Sentek Pty Ltd, 77 Magill Rd, Stepney, SA 5069, Australia;3. UniSA STEM, University of South Australia, Mawson Lakes Campus, SA 5000, Australia |
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| Abstract: | Audit efficiency and effectiveness can be significantly affected by data aggregation during audit procedures. Previous studies highlight that an appropriate level of data aggregation is needed because a continuous auditing (CA) system often generates numerous alarms. To respond to this issue, this study proposes a CA system with a three-layer structure. In the first layer of the proposed system, all journal entry level transactions are classified and aggregated using defined rules; any transactions that deviate from these rules are identified as unusual transactions. The second layer detects the observations that violate controls. Analytical monitoring models are developed in the final layer to identify observations that statistically deviate from an organization’s typical business behaviors. To examine whether the proposed three-layer CA system enhances the effectiveness of a CA system in identifying financial irregularities, this study empirically tests the proposed models using real-world journal entry data from a construction company. The results indicate that the proposed framework enhances audit effectiveness and efficiency. |
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| Keywords: | Continuous auditing Analytical procedure |
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