Continuous auditing is an automatic method used to perform auditing activities, such as control and risk assessments, on a more frequent basis. Technology plays a key role in continuous audit activities by helping to automate the identification of exceptions or anomalies, analyze patterns within the digits of key numeric fields, review trends, and test controls, among other activities.

The "continuous" aspect of continuous auditing and reporting refers to the real-time or near real-time capability for financial information to be checked and shared. Not only does it indicate that the integrity of information can be evaluated at any given point of time, it also means that the information is able to be verified constantly for errors, fraud, and inefficiencies. It is the most detailed audit.

Each instance of continuous auditing has its own pulse. The time frame selected for evaluation depends largely on the frequency of updates within the accounting information systems. Analysis of the data may be performed continuously, hourly, daily, weekly, monthly, etc. depending on the nature of the underlying business cycle for a given assertion.

The objective of financial reporting is to provide information that is useful to management and stakeholders for resource allocation decisions. For financial information to be useful, it should be timely and free from material errors, omissions, and fraud. In the real-time economy, timely and reliable financial information is critical for day-to-day business decisions regarding strategic planning, capital acquisition, credit decisions, supplier partnerships, and so forth. Advances in accounting information systems such as the advent of enterprise resource planning (ERP) systems have enabled the generation of real time information. However, the practice of traditional auditing has not kept pace with the real time economy. Traditional manual audit procedures are labor and time intensive, which limits audit frequency to a periodic basis, such as annually.

These time and effort constraints can be alleviated through the use of technology and automation. Continuous auditing enhances the delivery of auditing services by making the audit process more efficient and effective through the use of technology and automation. The increased efficiency and effectiveness of the audit process enables more frequent or real time audits and hence enhances the reliability of the underlying information.

The first application of continuous auditing was developed at AT&T Bell Laboratories in 1989. Known as a continuous process auditing system (CPAS), the system developed by Miklos Vasarhelyi and Halper provided measurement, monitoring, and analysis of the company's billing information. Here key concepts such as metrics, analytics, and alarms pertaining to financial information were also introduced.

Continuous auditing is made up of three main parts: continuous data assurance (CDA), continuous controls monitoring (CCM), and continuous risk monitoring and assessment (CRMA).

Continuous data assurance verifies the integrity of data flowing through the information systems. Continuous data assurance uses software to extract data from IT systems for analysis at the transactional level to provide more detailed assurance. CDA systems provide the ability to design expectation models for analytical procedures at the business-process level, as opposed to the current practice of relying on ratio or trend analysis at higher levels of data aggregation. CDA software can continuously and automatically monitor transactions, comparing their generic characteristics with predetermined benchmarks, thereby identifying anomalous situations. When significant discrepancies occur, alarms are triggered and routed to appropriate stakeholders and auditors.