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PurposeThe increasing provision of timely financial information through web‐based technology is expected to improve the quality of communication between a company and its stakeholders. However, the information asymmetry problem still exists since almost all “web‐releases” usually remain unaudited. The purpose of this paper is to propose conceptual and technical frameworks of continuous auditing to provide a solution for this problem. This solution could also move the traditional auditing forward to the new e‐auditing generation.Design/methodology/approachThis paper develops a conceptual framework to present why continuous auditing would dominate other auditing approaches in examining web‐based financial information. Using a 3 × 2 × 2 × 1 design, this study compares the economic efficiency of three auditing approaches under the joint‐combination of various disclosure types, materiality perceptions and information environments. A technical framework, the external continuous auditing machine, is derived from the conceptual framework to specify the generic procedures to perform the online control testing and the continuous substantive testing over web‐releases.FindingsContinuous auditing issues are scrutinized both theoretically and technically. Two main conclusions arise. First, the behavior model simulates various information disclosing and auditing environment and argues that the continuous auditing would be the most appropriate approach for web‐releasing assurance. Although the hypothesis derived from that model still needs further empirical supports, the anticipated sustaining is quite reasonable under the emergent web‐release practice.Originality/valueGiven the new era of online, real‐time business reporting, constructing a theoretical model and applying it to develop a technical model for implementing continuous audits for web‐releases provide significant contributions to the accounting/auditing professionals as well as researchers.

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The main purposes of this paper are twofold. First, the paper identifies and discusses the potential impacts of electronic commerce on auditing practices in the emerging paperless on‐line transaction environment. Second, it provides two auditing process models that incorporate modern network security techniques and show how an audit can be conducted in an EC environment. A periodical auditing process model (PAPM) is proposed to demonstrate how secure electronic technologies can be used to facilitate the auditor's evidence collection and validation process for annual and semi‐annual audits. We also present a continuous auditing process model (CAPM) which extends the functions of PAPM for continuous auditing. In CAPM, a real‐time transaction monitoring system is used to link to firms' accounting information systems for assisting the auditor to detect abnormal activities and generate exception reports on a continuous basis. The CAPM approach intends not only to ensure integrity and effectiveness of the entire accounting system, but also to guarantee the correctness and usefulness of the constantly generated financial statements for public dissemination. The main contribution of this paper is that it illustrates a conceptual framework which shows the feasibility of continuously auditing electronic transactions in the EC environment. Copyright © 2000 John Wiley & Sons, Ltd.

This study uses a design science approach to examine the consistency between quantitative financial ratios and qualitative narrative disclosures in the annual reports. To extract information on the tone of unstructured qualitative textual data, we first use the term frequency/inverse document frequency (TFIDF) text mining technique to classify each company's narrative disclosure as either “Positive” or “Negative.” For the quantitative information, we use the K-means method to cluster each company's financial performance data into “Good” or “Poor” groups. Consistency is said to occur when the textual and numerical data form either a “Positive-Good” pair or a “Negative-Poor” pair. The design model is presented in a stepwise fashion and therefore is transparent for evaluation and validation. Our evaluation process demonstrates the feasibility of the design model. The evaluation was conducted using listed semiconductor companies in countries with different levels of market development. The results show that U.S. firms are less likely to exaggerate in their narrative disclosures and are more likely to understate their performance in MD&As compared to companies in other markets such as China and Taiwan.