Continuous auditing: the audit of the future Zabihollah Rezaee Professor of Accounting, Middle Tennessee State University, Murfreesboro, Tennessee, USA Rick Elam Reynolds Professor of Accountancy, University of Mississippi, Oxford, Mississippi, USA Ahmad Sharbatoghlie Senior Systems Consultant, Boston, Massachusetts, USA Introduction The emerging information technology (IT) has spawned new business approaches such as electronic commerce, electronic data interchange (EDI), and the Internet. These approaches have changed business practices and the process of recording and storing business transactions. Doing business on the Web through the use of Internet technology enables organizations to connect into the on- line world and improve all aspects of their business. The Web site can improve selling products or services by giving options to existing or potential buyers to purchase products or services directly on-line. Business transactions can now be in electronic form without any paper documentation, enabling organizations to produce financial information on a real-time, on-line basis. Most recently, businesses are shifting from relatively costly EDI to less costly and more flexible Extensible Markup Language (XML). Furthermore, Extensible Financial Reporting Markup Language (XFRML) is also being developed to facilitate companies in sharing financial information. The new information technologies (e.g. the Internet, EDI, XML, XFRML) have crossed national boundaries to change the way organizations operate. Many entities now disclose their quarterly and annual reports on the Internet. Extensible Business Reporting Language (XBRL) is now receiving support and popularity from the financial community and the accounting profession. XBRL is a standardized electronic language for business reporting which facilitates the preparation, publication, examination, and extraction of financial information. Under XBRL, the information is entered only once and it can then be rendered in any form, such as a printed financial statement, an HTML document for the company's Web site, and EDGAR filing document for the SEC, or any other specialized reporting format (Zarowin and Harding, 2000). SBRL fosters effective and efficient preparation, automatic exchange, and reliable extraction of financial information across all technology formats including the Internet. XBRL will reduce repeatable financial reporting processes and will provide a platform for on-line real time accounting systems. Independent auditors should use continuous, electronic auditing when most financial information exists only in electronic form. The primary purposes of this paper are to: 1 discuss continuous auditing (CA) and its implications for independent auditors; 2 examine internal control of the ever- changing IT; and 3 examine key auditing aspects of new IT. Continuous auditing Making high-quality and timely decisions depends in part on the quality of the data and the existence of on-line and real-time information. Electronic and digital information is more flexible, accessible, transferable, and can be more easily stored, summarized, and organized than paper information. Information technologies have enabled organizations to conduct their business transactions electronically and prepare their financial statements on an on- line and real-time system. Under real-time accounting (RTA) systems, much of the financial information and audit evidence are available only in electronic form. Traditional source documents such as purchase orders, invoices, and checks are replaced with electronic messages, and underlying accounting data (e.g. journals, ledgers, and schedules) are in electronic forms or files (Rezaee et al., 2000). The change in business process that removes a traditional source of information requires the creation of new audit The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft [ 150 ] Managerial Auditing Journal 16/3 [2001] 150±158 # MCB University Press [ISSN 0268-6902] Keywords Real time, Accounting system, Information technology, Information systems, Internet Abstract Technological advances (e.g. e-commerce and the Internet) have changed business practices and the process of recording and storing business transactions. Extensible Business Reporting Language (XBRL) will soon be built into accounting and reporting software which would allow on-line real-time preparation, publication, examination, and extraction of financial information. Thus, outside, independent auditors should use continuous, electronic auditing when most financial information exists only in electronic form under real-time accounting systems. Continuous auditing and its implications for independent auditors, including internal control considerations and audit procedures, are described and analyzed.