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Continuous auditing: A new era for external auditors or a challenge to tradition?

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External auditors have long been tasked with ensuring financial integrity, detecting fraud and providing an independent opinion on a company’s financial statements.

Now, with the rise of continuous auditing, this role is evolving. Should auditors be involved in real-time financial monitoring? Will continuous auditing enhance audit quality or introduce new risks? And will AI and automation result in continuous audits that are more efficient, or will it drive up complexity and costs?

These questions go beyond technology — they redefine the audit function, independence and financial reporting expectations. The potential is huge, but so are the challenges that come with it.

What is continuous auditing?

Think of a traditional audit like an annual medical check-up — you go in once a year, the doctor reviews your health and gives you an assessment based on that visit. Continuous auditing? That’s more like wearing a smartwatch that tracks your health 24/7, constantly looking for issues as they happen. It uses AI, automation and analytics to monitor transactions in real time. Instead of waiting until the end of the reporting cycle, risks, anomalies and possible control issues are flagged as they happen.

At first glance, continuous auditing seems like a clear win — faster fraud detection, stronger financial oversight and fewer year-end surprises. But it also raises a critical question: If auditors are reviewing financial data year-round, are they expected to report findings externally in real time? And if they are not, could that expose them to greater liability?

The shift from traditional audits to continuous audits

Auditors traditionally provide independent opinions after management closes the books, but continuous auditing challenges this boundary. When auditors monitor financials year-round, the distinction between independent oversight and management’s control function can become blurred — at least in perception.

Flagging issues at many touchpoints during the year may also introduce concerns about their accountability for financial outcomes before the final opinion is issued.

Independence will always be a core pillar of auditing, both in fact and perception. As auditors engage in real-time monitoring, the challenge becomes ensuring they remain objective third parties rather than part of management’s oversight process. Regulators must then establish clear safeguards to uphold auditor independence while leveraging continuous auditing’s benefits.

AI and automation

This shift isn’t just happening because companies want it — it’s happening because AI and automation have made it possible. And let’s be honest: this technology is a game-changer. AI is transforming auditing by enabling real-time anomaly detection, predictive risk assessment and full population testing with greater accuracy than traditional sampling.

For audit firms, this means a fundamental shift in how audits are conducted. AI isn’t just making audits faster — it’s enabling full population analysis to catch risks that sampling might miss, automating repetitive tasks to give auditors more time for complex judgment calls, and strengthening fraud detection with continuous monitoring that builds investor confidence. How ready are firms to embrace this transformation?

What about the cost of continuous auditing?

Cost is another part of this debate around continuous auditing. Continuous auditing smooths workloads year-round, optimizing firm resources and specialists. AI handles routine transactions, freeing auditors to focus on complex, high-risk (high value) areas requiring expert judgment. It also allows management to have visibility of the audit fee build-up — distinguishing between tasks that can be automated with AI and the specialized work that demands deeper professional judgement. 

While continuous auditing offers those advantages, one could argue this may lead to higher audit fees if auditors are “on the ground” 24/7, the cost of upfront investment in AI tools, and added complexity in maintaining compliance with new regulations. The final answer depends on how firms adopt it — but in the long run, efficiency gains and stronger risk detection (i.e., preventing costly year-end financial restatements) may strongly justify the investment.

Will auditors fully embrace continuous auditing?

The demand for faster financial assurance is already here. Shareholders want more transparency and faster reporting, regulators want better oversight, and companies see AI-driven monitoring as an advantage. For this to happen, regulatory standards will need to evolve to address real-time assurance and how it aligns with auditor independence. Audit firms will need to balance technology investment with governance structures that ensure objectivity, transparency and liability-mitigation.

As companies (and internal audit practitioners) adopt rolling and periodic assurance models with AI-driven monitoring, the shift to a fully continuous audit model for external audit is not just a possibility — it’s within reach. But getting there requires more than just technology; it demands clear regulatory frameworks, strategic investment, and strong legal protection and independence safeguards to maintain trust in the audit process.

AI and automation will rewrite the playbook, shifting audit expectations from a single annual opinion to rolling, real-time insights. With historical audits losing their shine, more stakeholders are asking for a better solution.

Continuous auditing is no longer theoretical — it’s happening now. The challenge is ensuring it enhances audit quality while maintaining independence. With AI redefining expectations, are audit firms, regulators and businesses ready to embrace this shift? The conversation is just beginning — where do you stand?

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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