What is data analytics?
“It is the science and art of discovery and analyzing patterns, identifying anomalies, and extracting other useful information and data underlying or related to the subject matter of an audit through the analysis, modeling, visualization, and it’s really for the purpose of planning or performing an audit.” – AICPA Audit Data Analytics Guide
The fact is, data analytics will enhance your audits from both a quality and an efficiency standpoint. This is extremely important today, when audits are becoming more of a commodity and CPA firms are looking for ways to differentiate their services.
Data analytics utilizes all transactional data; so this will improve the audit quality by:
- Increasing your potential for detecting material misstatements
- Improving your understanding of your clients’ operations and their associated risks
- Revealing insights your clients are asking for, such as “How do I stack up against others in my industry?” and “What am I doing right or wrong?”
Additionally, data analytical tools will improve your efficiency in extracting and standardizing the data. Software tools make it easy to import all transactional data and run multiple analytical tests at once. The results help you see trends, anomalies and risks much easier than combing through thousands of rows in the general ledger. In other words, now you can reduce your sample size and zone in on the risky transactions.
“…when it comes to an audit fee perspective, you need to find those efficiencies to keep that audit fee at a reasonable rate; otherwise you’re just giving work away.” – presenter Michael Holmstrom from Marks Paneth
How to pick a data analytics tool
The AICPA Audit Data Analytics Guide provides suggestions on what to look for when selecting an analytic tool:
- Access to data – ability to import data from a PDF or Excel file, as well as direct connections to accounting systems
- Preparation of data for use – normalize and standardize the data
- Reliability of data
- Visualization capabilities – for reports and talking points with your client and audit team
- Documentation of results
Furthermore, the guide provides different examples of analytical tests you can perform throughout the audit in the areas of:
- Risk assessment
- Test of controls
- Substantive analytical procedures
- Test of details
- Forming the overall conclusion
Wolters Kluwer integrated solutions
Access data directly from your client’s accounting system – no matter what system they use (for example, QuickBooks, Navision, Xero, Great Plains, Sage). The data is presented in a consistent format, so you don’t need to learn the various accounting systems. Live reports allow you to manipulate what you see, like number of years, percentage or dollar amount variances, etc. as well as drill down to the journal entry level. Additionally, the many Excel reports created automatically reduces the number of reports your client needs to create. And as a result, less nagging your clients for reports that you can get yourself! Access to the data is useful for planning the audit, during the audit and year-round continuous auditing.
Cloud-based request list where you collaborate with your client and clearly set expectations and deadlines. Email notifications let you and your client know when changes are made to the organizer. Automatic reminders are sent to the client as deadlines approach and required documents are still outstanding. As we know, client readiness can certainly make or break a job.
Tools and features make data analytics easy for auditors with this Excel-based tool. Perform advanced analysis and reduce the risk of not testing enough or on the other hand, testing too much. The tool accesses data from PDFs, Excel, CSV, text files. It ensures reliability to that data, has the power of Excel behind it, and comes with 150+ tools and 200+ tests along with great guidelines on how to use them. Customize how you want tests to run, or what group of tests you want run. Additionally, it improves the quality of your audit by making sure the auditor runs what needs to be run, understands why they’re doing it, and gets visualization of that data. It is that visualization that is the great conversation starter.
Data analytics tells a story and improves your communication across the audit team as well as with your clients. As the trusted advisor, you’re the perfect one in position to really understand your clients’ business and talk to them about where the risks are and how they’re trending and comparing to others.
The best way to get started with incorporating data analytics into your audits is to start small. First, select your tool and a few tests to run, and then build upon that. Just watch the quality and efficiency in your audits go up!
This blog is based on a webinar titled “Evolve or Become Extinct”, held on August 6, 2019. Watch the video to learn more on how to improve your audit quality and efficiency.