1 Emerging CARLAB work Miklos A. Vasarhelyi

2 Outline Continuous Control Monitoring Simulating Continuous Auditing Control Tags

3 Ongoing CA/R/Lab Projects CA = Continuous Control + Continuous Assurance 1.Continuous Control Monitoring (CCM) Siemens SALT project KPMG next generation control assessment Control tags 2.Continuous Assurance Advanced analytics at HCA (and Siemens) Liberty CA Simulator (and integrating with CCM)

4 CCM

5 Distributed And Inter-networked Systems: A New Control Paradigm Auditee systems Auditee systems Auditee systems Auditee systems Auditee systems Control Monitoring Device Monitoring Probes Control Agent resident analytics resident analytics resident analytics resident analytics metrics CA Monitoring Audit by exception

6 Levels Of Assurance Data Level Assurance (DLA) –Develop innovative tools: control tags, cookie crumbs, control paths, aggregate estimates Process Level Assurance (PLA) –Create a model that allows for the process by process estimate of control effectiveness Opinion Level Assurance (OLA) –Develop temporal related continuous control effectiveness assessments Evergreen opinions Exception frames Probabilistic opinions

7 Simulating Continuous Auditing Miklos A. Vasarhelyi Rutgers University

8 Outline The problem Structure of the simulation Demo Conclusions

9 The problem Progressively a large set of solutions is emerging in the CA arena Many of them have been theoretical and have no empirical basis It is very difficult to get transactional and/or control data from real-life companies Companies will give little entry to real-life situations

10 Structure of the Simulation Distributional data drawn from real life data The control structure is symbolic of a wide set of companies / processes We will vary the control structure and nature of data stream to compare

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14 System Architecture

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16 Conclusions A tool for continuous audit simulation through transaction replication and control evaluation Used real company distributions ARENA is a constricting tool There is much potential for its use Next step is results of simulations

17 Control Tags Miklos A. Vasarhelyi

18 Definition XML derivative tagging with a new type of tag, the control tags that incorporate specific control information on items of information.

19 Types of Control Tags 1) tags that specify the reliability of the control process that has generated the transaction 2) tags that serve to leave behind tracer information on the datum processing (cookie crumbs), 3) tags that record processes that the transaction was submitted, 4) tags that contain other control information, and 5) a mixture of the above.

20 Reliability control tags An ongoing assessment of the reliability of the control processes that generate a transaction is made. This measurement is carried with the transaction If it is subject to other processes, this reliability assessment is changed

21 Control tags, cookie crumbs and digital IDs Consolidation Financial statements Subsidiary 2 Financial statements Subsidiary 3 Financial statements Subsidiary 1 Financial statements Assurance station DID1 DID6 DID5DID4 DID2 DID3 Financial Intermediary Financial statements analysis DID7 DID8 DID9 Dynamic control spots with cookie crumb collection

22 Tracer related control tags (cookie crumbs) Tags carry a unique identifier of the transaction that is encrypted This identifier is deposited in tracer receptacles across the transaction path Public x private encrypting schema are used to verify transaction paths

23 Path recording control tags Transactions record its path by collecting process DIDs and carrying them encrypted Alternatively these may be deposited in a third party safe Web site and a pointer carried Information about the crypt decoding key / method is carried by the transaction as a tag

24 Information Control Tags Contain other control related information that could entail –Organizational placement and hierarchies –Reliability change related information –Name of the DLA assuror, e.g. KPMG –Outsource related agreements

25 Conclusions The balkanization financial information distribution creates serious integrity concerns Control tags associated to XML derivative transactions can deal with many of these problems Substantial investments on the standards, their implementation into software, and their conceptualization must be made