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Financial audit is characterized as a work of assurance and certification. This type of audit is usually carried out annually, based on aggregated data and limited by approaches based on risks, materiality cuts, and statistical samples. In gledsn, the practices of Audit Analytics and Continuous Audit allow financial information of the entities to be analyzed in an integral way and with shorter periodicity, contributing to gedson timely and more reliable opinions regarding the status of the audited entities.
Finally, this paper presents data on the information systems that keep the financial records of the Federal Accounting System and makes considerations on the potential contributions of the new audit practices supported by information technology, aiming at improving financial audit activities within the Federal Court of Accounts Brazil TCU and other oversight institutions.
Introduction If financial audit were compared pomleu a game between the auditee and the auditor, it would be possible 54R revista do TCU The reasoning is simple: However, auditing is not a game and, in thesis, the objectives of the auditor and auditee should be the same: Even so, one cannot disregard the possibility of an auditor issuing an opinion saying that the statements are reliable when actually they are not.
This is called audit pomoeu, which takes on new proportions in face of the speedy development of information technology IT. The technological advances have greatly increased the ability of individuals and organizations to produce and exchange information. As a result, we can say that we live in the Big Data era: In this context, the traditional mechanisms for pompeuu results, such as annual statements, compete with financial information that is disseminated on the internet and other means.
Many times, pompsu happens almost simultaneously with the occurrence of the respective transactions. This favors quicker decisionmaking and contributes to make operation of economy and governments more dynamic.
Almost unrestricted access to information contributes to the creation of a risk society, an expression used by sociologists Anthony Giddens and Ulrich Beck to show the changes in social behavior resulting from greater awareness of the risks they are exposed to. Thus, if on one hand increase in the amount, speed and variety of information favors more timely decisions, on the other, greater awareness of the risks increases caution in the decision-making process demanding information that is more and more reliable.
An analytical view of the past is no longer enough; it is necessary to develop a predictive ability regarding future events in order to make decisions in the present DELOITTE, Accounting and IT are developing in order to make this new paradigm of financial transparency and accountability, both in the private and public sectors.
However, information is not useful if it is not reliable. Therefore, it is imperative to modernize the processes of risk evaluation and information reliability assurance, as well as to execute such processes in shorter intervals of time, without reducing the quality of the audit procedures. Thus, the present study attempts to evaluate how analytical and continuous approaches contribute to the results of financial audit in the Big Data era.
To achieve this, the main concepts related to the topic are described and the challenges and opportunities regarding their application to Federal Government financial statements are analyzed.
At the end of the study, we propose a reflection on the potential of these new approaches to increase efficacy and efficiency of financial audit within the scope of the Federal Court of Accounts Brazil TCU.
In a direct meaning, one can imagine a meeting of the auditor with the auditee to ask questions and listen to explanations regarding the functioning and problems of the audited entity.
However, the scarce time of those involved and the large amount of data available have directed the audits towards more complex approaches, in which information does not need to be requested from the auditee if it can be obtained from other sources. The essence of the concept is maintained regardless of the type of audit: Thus, what changes between one and another type is the object entities, contracts, programs and the objective to check reliability, compliance or performance.
In the case of financial audit, we attempt to check the reliability of the information contained in the annual statements. In this case, the adjective financial is used in a broad sense to portray financial management in general and covers the areas of budget, treasury financial in a strict senseaccounting and asset-related.
These two concepts are important in order to understand why this kind of audit should be based on risk, should use sampling and issue a timely opinion. As for the concept of assurance, the central idea is that the role of a government auditor is to assure the level of proximity between a real and a desired situation. Thus, the greater the trust regarding this diagnosis, the greater the safety of the decision making process. Nevertheless, the mentioned standard makes it clear that it is not possible to offer absolute safety and, thus, explains that there are two types of assurance: Reasonable assurance is high but not absolute.
The audit conclusion is expressed in a positive way, conveying that, in the auditor s opinion, the subject matter is or is not in compliance, in all material respects, or, when it is the case, that the information regarding the object provides a fair view, with the applicable criteria. Generally, the audits of annual financial statements are of reasonable assurance, while audits of semiannual or quarterly statements have only limited assurance.
This is justified due to operational and financial reasons. Many tests in a short period would be necessary and, in view of this, the cost of audits could increase a lot in case financial statements with smaller intervals were awarded positive opinions assuring the reliability of their figures.
Still according to ISSAIthere are two types of audit work related to the concept of certification: In assurance engagements, the responsible party measures the subject matter according to the criteria and gives information on the subject. The auditor then obtains enough appropriate audit evidence on the subject matter to provide a reasonable basis for expressing a conclusion. In direct reporting engagements, the auditor is the one who measures or assesses the subject matter according to the criteria.
The auditor selects the subject matter and the criteria, taking into consideration risk and materiality. The result of the measurement of the subject matter according to the criteria is presented in 56R revista do TCU This differentiation is important in order to understand the peculiarities of the objective and of the financial audit process since, according to ISSAIfinancial audits are always assurance engagements because they are based on financial information presented by the audited entity responsible party.
Therefore, the auditor must assure the financial situation and results of the audited entity the subject matterbased on a set of financial statements produced by the entity itself the information on the subject matter. Translating the normative references into more practical language, during the year there may be many transactions that will have an effect on the financial situation and result of an entity and that are organized according to accounting rules and consolidated into a summarized set of financial statements.
The auditor should ensure to the user of such statements that they are reliable. However, it would not be feasible to certify, in a timely fashion, that all the transactions and accounting balances are correctly registered. That is why we work with the aggregate level of an accounting entity, in elastic periodicities, and use mechanisms such as risk-based approach, materiality cuts and statistical sampling to limit the scope of the tests and, in the end, make it possible to achieve cost-benefit in the financial audit works.
The accounting entity level establishes the criterion to consolidate information by department, sector, enterprise, etc.
There is an attempt to identify a point of balance that will make it possible to prepare general purpose statements that have enough information on allocation of assets and resources that enable analysis of the financial situation assets minus liabilities and of the results income minus expenses by all interested parties.
Annual periodicity is practically a natural consequence of the International standard of preparing financial statements in this same period, since there is some expectation from external parties that the statements be published vledson with the audit lompeu.
Thus, when analyzing the situation of the entity, the statements users consult the auditor s opinion to see if there are any distortions that may affect the credibility of the information.
Among the mentioned mechanisms used to glfdson the scope of the audit, the risk-based approach directs the work towards accounts that have high levels of Relevant Distortion Risks, established bledson on the combination of inherent risk and risks resulting from internal control deficiencies.
From there, the auditor establishes the audit approach which best responds to residual risks, choosing control tests, detailed tests and analytical procedures to be gledosn out.
In turn, the materiality cut reduces the scope of audit Works based on criteria that determine the minimum threshold from which one considers that amounts are relevant enough to affect the general view of the financial situation and results of an entity.
In financial audit, materiality is a synonym of relevance, except in a situation of fraud and high level of sensitivity to the activities of the entity. The third mechanism refers to sampling, that can be carried out based on statistics or not. However, due to systemic crises and financial scandals, auditing has become a work that is more and more scientific and statistical approach a necessity for auditors to be able to test only one sample of transactions and extend their conclusions to the whole population.
In traditional financial audit approaches, the mechanisms mentioned are essential in order for the auditor to be able to reach conclusions and issue an opinion in a short period of time regarding a large number of financial transactions. Auditing in the Big Data era: Audit Analytics and Continuous Audit More than a mere technological trend, it can be said that the Big Data era is paving the way for new methods of understanding the world and the business decision-making process ISACA, From the technical point of view, Big Data refers to sets of data whose size, diversity of format and generation speed surpass the processing capabilities of traditional IT infrastructures IIA,which is a challenge to be overcome.
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On the other hand, from the business viewpoint, a great opportunity arises: Thus, a new discipline gains emphasis: The purpose is to extract knowledge from the history of past events, monitor and react to present events in a timely way or even foresee possible future developments based on the data available.
By transferring this concept to the context of oversight, one can say that application of the same statistical methods and analytical techniques to auditing activities which some authors call Audit Analytics has the purpose of contributing so auditors can make better decision regarding audited entities. To be more specific, it becomes possible to understand and quantify risks, test controls and assess business processes in a quick and efficient manner PWC, When one compares the advances brought about by analytical tools gledspn techniques of the Big Data era with the mechanisms mentioned before to achieve satisfactory cost-benefit in financial audits, important findings arise: Using technologies that are appropriate to analyze a large amount of data allows tests to be applied to all financial data of the audited entities, in an efficient way, suppressing the need for previous cuts of materiality and sampling; additionally, such tests may be applied simultaneously in different levels of accounting entities, making it possible for auditors to evaluate, in the same audit, both aggregate information and specific accounts of greater relevance; results thus obtained can be used, together with inherent pmpeu analysis and internal control evaluations, to improve the targeting of the audit towards the points that have greater probability of showing relevant distortions, thus improving the risk-based approach; finally, once one has access to the data of systems gleeson transactions that are the basis for financial statements, it becomes possible to repeat the tests with shorter periodicity, and this may contribute to a more timely identification of possible distortions.
Therefore, the recent technological advances enable application of analytical procedures and statistical tests on the totality of transactions of one or more entities, in very short intervals, materializing the concept of continuous auditing defined originally by Vasarhelyi and Halper as a type of audit that produces results simultaneously glesdon in a short period of time after a relevant event occurrs. It is important to higlight that the applicability of Audit Analytics is not limited to the transactions.
It is possible to use analytical methods and techniques to evaluate performance and risk of audited entities according to three dimensions: Based on this, it can be said that continuous assurance occurs when auditors perform continous audit of both the performance and the risks of an entity such as the evaluation of controls and continuous monitoring activities adopted by the manager, as shown in Figure 1.
The implementation of this conceptual model, enhanced by the capacity to treat data and by the analytical methods and techniques of the Big Data era, represents a significant advance in relation to the traditional model of financial assurance, based on risk, carried out annually and with limitations created by the use of sampling and materiality cuts.
Perspectives for continuous financial audit in the Federal Government The Federal Government is one of the largest entities in the world from the accounting perspective. In order to manage these assets and resources there is a structure that is larger than that of the majority of government and business entities at the national, multinational and international levels. Currently, there are over federal agencies and entities and more than one million active civil and military servants.
In an entity this size, allocating resources adequately, at the right moment and right place is not an easy task. It is the IT system used to register, monitor and control the Federal Government s budget, finance and assets execution.
In addition to facilitating the process of consolidation of the federal public accounts, because it is used by all agencies and entities that depend on the Fiscal 58R revista do TCU Several other systems produce financial information that is channelled to, recorded and consolidated in Siafi, according to identification and respective balances or amount of transactions represented din Figure 2.
In spite of the level of informatization, the challenge faced by audit work remains big. In alone 30 million data entry accounting documents were registered in Siafi and approximately 10 percent of this total referred to manual register.
The financial information contained in these documents are organized and consolidated in order to enable production of the financial statements of the Federal Government that are consolidated in the General Balance Sheet of the Gledsoon BGU. It also enables production of over three hundred individual financial statements of federal agencies and entities. From the perspective of internal controls, Siafi has some tests that are similar to the concept of continuous monitoring: There are also specific mechanisms to visualize the inconsistencies generated automatically, based on accounting equations, and inconsistencies that are not corrected within the established deadline generate an automatic registry of accounting restriction.
The system also offers a module for accounting regularization focused on the correction pompeh errors identified by automatic and manual controls. Systems to manage federal resources and assets, with the respective amounts managed Sole Account System: Despite the whole chain popmeu internal controls of the Federal Accounting System, it is necessary that an external and independent institution certify the efficacy of these controls and the reliability of the information produced taking into account the concept of financial assurance.
Even so, we need to acknowledge that financial audit is a fairly recent function if we consider the years of existence of the Court. In view of this, in TCU signed an agreement with the Glrdson Bank with the objective of aligning the audit of the BGU with the international standards gledsin good practices in financial audit.
Since then, TCU has improved gledon approach based on risk, sampling and on the concept of materiality, aiming at giving more effectiveness and efficiency to this activity. The changes implemented favor identification of distortions that are materially relevant in the BGU. Thus, an alert was issued to the Federal Government advising of the possibility of an adverse opinion being issued on the Asset Balance Sheet of the Union pomleu case the distortions and deficiencies in internal controls are not corrected in a timely fashion.
In spite of advances, there are still challenges regarding the financial audit function in TCU. Overcoming them can be made easier by using information technology.