Continuous Auditing, written by Michael G. Alles, Ph.D., Alexander Kogan, Ph.D., Miklos A. Vasarhelyi, Ph.D. and J. Donald Warren, Jr., Ph.D., CPA, introduces accountants, auditors, managers and regulators to the field of continuous auditing.  

For purposes of this Portfolio, continuous auditing (CA) means two main processes:  

1) a process of constantly testing transactions based upon criteria prescribed by the auditor and identifies anomalies (exceptions) on which the auditor can perform additional procedures; and 

2) a process of continuous control monitoring. 

This Portfolio introduces the subject matter and then discusses the environment, the need for new methods of auditing, the impact of the Sarbanes-Oxley legislation, the drivers of continuous audit, and extant research in continuous audit.  

Continuous Auditing presents a basic conceptualization of monitoring and control and continuous reporting and assurance, respectively. It then focuses on the design of a continuous auditing system using basic elements that are accessible to most organizations. This Portfolio focuses in particular on allowing smaller organizations to acquire some basic elements of continuous assurance without acquiring expensive and complex software. 

This Portfolio also describes two ongoing pilot research efforts at large U.S. organizations aimed at the monitoring of control settings and at automating the audit of a continuous data flow. These two examples can serve readers in the development of their own ideas of CA in their organizations. It attempts to give guidelines to organizations in the implementation of CA from the perspective of management.  

Finally, the Portfolio examines extant issues such as what organizational attributes are conducive to CA implementation, the extent that external auditors can rely on internal auditor's CA work, and other issues.

Continuous Auditing allows you to benefit from:

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
• Invaluable practice documents including tables, charts and lists.
• Guidance from world-class experts.
• Real-world and in-depth analysis that lets you explore various options.
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios. 

This Portfolio is included in the Accounting Policy & Practice Series, a comprehensive series of titles which explain, explicate, and offer commentary on a wide range of accounting and financial management topics, including revenue recognition, income taxes, leasing, business combinations, debt instruments, risk management, internal controls and more. 

Detailed Analysis

I. Scope, Focus, and Purpose of Portfolio

A. Scope and Focus-Auditing Fair Values

B. Purposes of Portfolio

C. Portfolio Content

II. Fair Value Accounting

Introductory Material

A. Evolution of Fair Values and Rationale for the Use of Fair Values

B. Fair Value Defined

C. Fair Values Used in Accounting

1. Recognition

2. Disclosure

3. Business Combinations

D. Fair Value Option Prescribed by FAS 159

III. Fair Value Estimation

Introductory Material

A. Accounting Rules for Estimating Fair Values

1. Fair Value Measurement Under FAS 157

2. Other Measurements Rules Outside the Scope of FAS 157

a. Share-Based Payments

b. Software Revenue Recognition

c. Inventory Pricing

d. Lease Accounting

B. Alternative Approaches to Estimating a Fair Value

1. Cost Approach

2. Market Approach

3. Income Approach

4. Relationships of the Approaches and Auditors' Responsibility

C. International Financial Reporting Standards

IV. Fundamentals of Auditing Fair Values

Introductory Material

A. Objective

B. Level and Quantity of Audit Procedures

C. Major Steps and Procedures

D. Comparisons and Contrasts Under International Auditing Standards

V. Planning

Introductory Material

A. Importance and Objectives

B. Procedures

C. Auditor's Conclusion

D. Auditor's Documentation

VI. Interim Procedures

Introductory Material

A. Importance and Objectives

B. Internal Control Issues and Tests

C. Substantive Test Procedures

D. Auditor's Conclusion

E. Auditor's Documentation

VII. Year-End Procedures

Introductory Material

A. Importance and Objectives

B. Evaluating Fair Value Measurement Requirements

C. Procedures for Auditing Simple Fair Value Measurements

D. Procedures for Auditing Complex Fair Value Measurements

1. Testing Valuation Model, Assumptions, and Underlying Data

a. Understanding, Reviewing, and Evaluating Valuation Methodology

b. Clerically Test Client Valuation

c. Identifying and Evaluating Assumptions

d. Evaluating Underlying Data

e. Performing Sensitivity Analysis of Key Assumptions

2. Independent Valuation

3. Subsequent Events or Transactions

E. Client Uses a Pricing Service to Obtain Fair Value Measurements

F. Management's Representation

G. Auditor's Conclusion

H. Auditor's Documentation

VIII. Sources of Evidence

Introductory Material

A. Major Classifications

B. Level 1 Inputs

C. Level 2 Inputs

D. Level 3 Inputs

IX. Using an Expert in Auditing Fair Value

Introductory Material

A. Why Use an Expert?

B. Who Is an Expert for Auditing Fair Values

C. Auditing Procedures When Using a Valuation Expert

X. Auditing Fair Values Associated With Illiquid Markets

Introductory Material

A. Fair Values and Illiquid Markets

B. Auditing Involving Illiquid Markets

XI. Auditing Sensitive Items Applicable to All Industries

Introductory Material

A. Investments in Equity Securities

B. Investment in Privately-Held Bonds

C. Investment in a Partnership

D. Derivatives

E. Inventory

F. Stock-Based Compensation

1. Black-Scholes Method

2. Lattice (Binomial) Method

G. Impairments

H. Long-Term Debt

I. Asset Retirement Obligation

J. Investments in Collateralized Debt Obligation (Active Markets)

K. Collateralized Debt Obligations (Inactive Markets)

L. Fair Value Disclosures

XII. Industry Specific Issues

Introductory Material

A. Banking

1. Consumer Loans

2. Commercial Loans

3. Loan Commitments

B. Insurance

C. Real Estate

Working Papers

TABLE OF WORKSHEETS

Worksheet 1 Glossary of Significant Terms and Acronyms

Worksheet 2 Sample Check List for Use of Fair Values Under GAAP

Worksheet 3 Sample Audit Workpapers: Investments in Equity Securities

Worksheet 4 Sample Audit Workpapers: Investment in Privately-Held Bonds

Worksheet 5 Sample Audit Workpapers: Investment in a Partnership

Worksheet 6 Sample Audit Workpapers: Derivatives

Worksheet 7 Sample Audit Workpapers: Inventory

Worksheet 8 Sample Audit Workpapers: Stock-Based Compensation

Worksheet 9 Sample Audit Workpapers: Stock-Based Compensation

Worksheet 10 Sample Audit Workpapers: Impairments

Worksheet 11 Sample Audit Workpapers: Long-Term Debt

Worksheet 12 Sample Audit Workpapers: Asset Retirement Obligation

Worksheet 13 Sample Audit Workpapers: Investments in Collateralized Debt Obligations (Active Markets)

Worksheet 14 Sample Audit Workpapers: Investments in Collateralized Debt Obligations (Inactive Markets)

Worksheet 15 Fair Value Disclosure Example: Abbott Laboratories

Worksheet 16 Fair Value Disclosure Example: Devon Energy Corporation

Worksheet 17 Fair Value Disclosure Example: Bank of America Corporation

Worksheet 18 Fair Value Disclosure Example: SunTrust Banks

Bibliography

OFFICIAL

Securities and Exchange Commission

SEC Releases

SEC Staff Accounting Bulletins

SEC Filings

Accounting Principles Board Opinions

American Institute of Certified Public Accountants

AICPA Statements of Position

AICPA Statements on Auditing Standards

AICPA Accounting Research Bulletins

AICPA Statement on Standards for Valuation Services

AICPA Audit and Accounting Guides

Financial Accounting Standards Board

Emerging Issues Task Force Issues

FASB Concepts Statements

FASB Statements of Financial Accounting Standards

FASB Staff Positions

International Accounting Standards Board (IASB)

International Accounting Standards

International Financial Reporting Standards

International Auditing and Assurances Standards Board (IAASB)

IAASB International Standards of Auditing

IAASB Releases

Public Company Accounting Oversight Board

PCAOB Rules

PCAOB Miscellaneous

UNOFFICIAL

BNA Portfolios

Articles

Books