In an increasingly data-driven world, extracting actionable information from the data is becoming more difficult, and the question remains, are we able to exploit the data to our full advantage? To keep up with today’s rapidly complicated governance and risk management business model, progressive audit firms have started using technology to change the way in which audits are conducted. As the reporting and disclosure requirement is increasing, the auditors continue to gather more information from clients and operations, but knowing how to analyze and apply it is imperative. Business analytics shows us how to analyze the volumes of information obtained. For many of us, this term is comparatively new in accounting. Data Analysis is the process of extracting data from different sources and categorizing it to identify and analyze data patterns to enhance productivity with the aid of specialized systems and software. In the auditing world, it will enable the auditors to analyze both structured and unstructured data.
As companies like Amazon, Netflix and Target try to position themselves to reap the benefits from data analytics and harvest data about consumers’ buying patterns, similarly the use of analytics has the potential to help management and internal and external auditors conduct more effective and efficient audits. Data analytics can play a key role in different aspects of accounting. An accounting professional is now required to perform tasks with skills that will integrate analytics into the audit process and enhance audit quality by producing higher quality audit evidence. One of the significant trends after the integration of analytics in audit is permitting both external and internal auditors to look at the entire data sets rather than manually reviewing statistical samples. Using audit data analytics throughout the audit process will not only reduce repetitive tasks, but it will also help in discovering the best course of action.
Accounting professionals don’t need to have all the knowledge required to be a data scientist or computer engineer to benefit from the data revolution. However, it is important that they go beyond the traditional accounting concepts and build a strong background in the techniques and tools to evaluate data more effectively. This will aid in decision making and enhance the current audit practice. The leap from traditional audit approaches to one that fully integrates big data and analytics in a seamless manner is quite massive. Large accounting firms have already started embracing analytics in tax auditing consulting and risk management.
Analytics in External Auditing
Big data and analytics are enabling external auditors to better identify financial reporting, fraud and operational business risks, and tailor their approach to deliver a more relevant audit. Audit data analytics methods can be used in audit planning and for improving auditors’ knowledge about the transactions and balances underlying the financial statements. This will enable the auditor to assess the risk by analyzing data to identify patterns, relationships, and any variation from models. This will improve the quality of analytical procedures in all the phases of audit as these methods give auditors new insights about the entity and its risk.
Analytics in Internal Auditing
Internal audit plays a key role in ensuring that the company is operating under a sound internal control environment by carrying out various testing and internal control procedures. Internal auditors act as strategic advisors by analyzing data to produce actionable information. The value of integrating analytics into the audit will only be realized when used by auditors to modify and customise the scope, nature and extent of the audit. This will require auditors to develop new skills and techniques on knowing what relevant questions pertaining to the data are to be asked, and the ability to use analytics output to produce audit evidence and draw conclusions. As opposed to sampling a small percentage of data, the data analytics tools will allow the internal auditors to test 100 percent of various data attributes, which would help the internal auditors identify the potential business risk, such as fraudulent payments and payroll fraud.
Challenges in Analytics in Accounting
There are various issues and challenges. The biggest challenge is how to access the data and analyze it to produce actionable information. Sometimes access to audit relevant data can be limited. Multiple accounting systems within the entity contain different sets and types of data. The complexity of data and multiplicity of data sourcing for analytics remain one of the key challenges in seamless integration.
However, at the end of the day, big data analytics play a key role in audit by creating better business risks assessment, helping to derive new insights into risks, identifying frauds, errors in internal control and compliance failures. It helps transform the audit process for better financial reporting, and shifts the focus to information that counts rather than information overload.