Continuous audit: Model development and implementation within a debt covenant compliance domain

Abstract

Because of technological advances and the current audit environment, there is a growing interest in the concept of continuous audit. Conceptually, a continuous audit is an assurance service where the time between the occurrence of events underlying a particular subject matter and the issuance of an auditor's opinion on the fairness of a client's representation of the subject matter is eliminated. A continuous audit is the natural evolution of the integration of technology into the auditing domain. Although the concepts of continuous auditing are now more than a decade old, only recently have technologies emerged that are both widely available and affordable, making implementation of the continuous audit feasible. The Canadian Institute of Chartered Accountants and the American Institute of Certified Public Accountants have together called on the research community to investigate the concept of continuous auditing and its implementation in various audit domains. In response to this call, we develop a conceptual model of a continuous audit, and, as proof of concept, we design and demonstrate an implementation of continuous audit within the debt covenant compliance domain. The demonstrated Web application uses digital agents and alarm triggers sent over the Internet to continuously monitor whether actual values of a client's variables are in compliance with standards for these variables set out in the debt covenant agreement.