AUDIT ANALYTICS AUDIT

AUDIT ANALYTICS AND CONTINUOUS AUDIT:LOOKING TOWARD THE FUTURE
HYPOTHETICAL ILLUSTRATION OF
CRMA IN USE
Moxy Motors, Inc., an automobile manufacturer, maintains a robust
CRMA system. One noteworthy aspect entails continuous monitoring of
the regulatory environment relative to the risk that auto emissions
standards will become excessively stringent. In addition, given the
growing momentum concerning sustainability, social responsibility, and
"green" initiatives in general, mechanisms have been implemented to
monitor these areas as well. Consequently, there is a combined set of risk
indicators to report on the phenomena as they pertain to the automotive
industry. Although the overall reporting measure was in a normal state at
11:30 a.m., it suddenly spiked at noon so as to translate into a significant
business risk. Fortunately, the operational managers and audit teams
were alerted to this problem immediately by the CRMA dashboard
reporting module, and promptly initiated investigations.
Management used the information primarily to revisit organizational risk
management protocols. A strategic response for addressing this severe
regulatory risk involved allocating additional research and development
(R&D) efforts toward the design and production of more
environmentally friendly vehicles such as hybrid fuel, electric, and
hydrogen-based cars and trucks. Furthermore, R&D emphasis regarding
traditional vehicle design and development was to be diminished by 25
percent. While these rearrangements would substantially increase costs
in the short-run, the estimated long-run benefits provided more than
adequate justification for change.
Meanwhile, the auditors were simultaneously processing the current
CRMA information to refine the audit plan and adjust audit actions
accordingly. The growing concerns suggested that added audit
procedures and testing routines to mitigate audit risk should be enacted
and more explicitly emphasize accounts, balances, and transactions
potentially affected by R&D activities, discretionary accruals, and
revenue-related items. Because Moxy had relied predominantly on
production of fossil fuel burning cars and trucks, the burden placed on
the organization via restructured R&D investments could enhance the
probability of questionable accounting practices appearing in that area.
Furthermore, because of rising operating costs and resulting issues
relative to management’s concerns about meeting various short-term
earnings targets, there could be immediate pressure to manage earnings.
By proactively responding to the identified business risks, managers
productively implemented an action plan for addressing the emerging
problems. In addition, auditors were able to adjust the audit plan in
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