How to Embrace Analytics in the Audit

Earlier this month, Boomer Consulting, Inc. had the honor of sponsoring Wolters Kluwer’s Audit Talks LIVE – Spring 2020 virtual conference. The conference brought together audit experts and technologists to talk about the rapidly changing audit landscape. Together with how firms can transform their practices to better serve clients.

Furthermore, two of the most popular sessions focused on how to embrace analytics in the audit. Therefore, I thought it would be a good opportunity to share some of the takeaways from those sessions and insights from the hosts, Patrick Tokarski, Technology Product Manager, and Cathy Rowe, Director of Product Management at Wolters Kluwer; Christopher O’Neal, Partner, and Morgan Martin, Senior Associate at Rӧdl & Partner; and Stefan Davis, Senior Product Manager for TeamMate Analytics.

However, before jumping into the how, our hosts knew it was important to talk about why using analytics in audits is so important.

Why use audit data analytics?

Actually, one of the main reasons the AICPA, PCAOB and other groups in the accounting profession endorse the use of audit data analytics is because of risk. Because of this, auditors need to have a deep understanding of the client, their business, and the environment they’re operating in to ensure the auditor understands the results of any analytical testing.

By doing that, the auditor gets a better understanding of where risks are, and it makes it easier to detect material misstatements in the financial statements. Ultimately, that improves communication and oversight because auditors can provide clients with suggestions on how to improve their business.

How to incorporate analytics in the audit

To continue, most accountants realize that their firms and their clients’ businesses have massive amounts of data. Consequently, the challenge is ensuring that data is clean and usable. So, one of the first steps in how to embrace analytics in the audit is getting the data into the format necessary to be able to use it.

Notably, every accountant has had the experience of getting data from a client that requires some clean-up, whether that involves fixing date formats, getting things into uniform columns, and so on.

With this in mind, during the session Patrick talked a bit about Wolters Kluwer’s answer to that challenge: TeamMate® Analytics. TeamMate Analytics is a tool designed specifically for accountants and auditors. Additionally, it uses terminology accountants use and works with Microsoft Excel. Thus, you don’t have to be a tech guru to leverage it. Also, it integrates with CCH® ProSystem fx® Engagement and CCH® ProSystem fx® Knowledge Coach, so it’s a powerful tool that’s very easy to use.

Moreover, as O’Neal explained during the session, when his firm decided to try out TeamMate Analytics, they started with a pilot group of 15 people who used it for sampling selections and stratification. “What we found is that everybody that jumped into it kept finding more and more ways to utilize it. Not just in the heavy analytics, either. But also in simple, day-to-day stuff like organizing dates,” O’Neal said.

Practical ways you can use TeamMate Analytics to incorporate analytics into your audits

Specifically, some of the Rӧdl’s biggest wins have come from automating tasks that the firm does all the time, making using data analytics in the audit easy, repeatable, and standardized.

For example, during the session Davis demonstrated how Rӧdl’s workflow uses TeamMate Analytics to test accounts receivable by re-aging the client’s accounts receivable and looking for outliers like balances that are unusually large for the particular customer. Similarly, the workflow also pulls out any intercompany customers, looks for customers with material credit balances and duplicated invoices.

In fact, the software can perform dozens of tests, and the firm can prioritize those tests based on its risk assessment. For example, the auditor might decide that duplicate invoices and missing sales orders should be scored a 10 to indicate they are high-risk areas, so the auditor is sure to look at the results of that test. The auditor just needs to fill in a few boxes (materiality, related party names, etc.) and then run the tests.

Also, the software can create visualizations for aging, summarizing receivables by country, etc. and put those visualizations into a dashboard.

“With our rollout to the entire firm,” Martin says, “we now have built this workflow that with the click of a button will provide all of that information to our auditors, who would otherwise spend time running pivot tables, re-sorting data and formatting.”

The right mindset is key

Equally important, the key for any firm incorporating data analytics tools into their audit is mindset. In the short term, it’s easy to revert back to the way we’ve always done things rather than take the time to learn a new tool – however user friendly – and create new ways to perform audit procedures. But, working through the short-term discomfort of learning new tools and experiment with new ways of leveraging them pays dividends in the long run.

That’s a mindset shift that Martin was very conscious of going into it. “I started forcing myself to go to the tools and start looking for whatever it is I’m trying to do and how I can accomplish it,” Martin says. “After a few weeks of using it, it became much more natural and much faster to know where I needed to go and what I needed to select to accomplish what I was trying to do.”

Indeed, having that mindset doesn’t always come naturally. However, it’s something every auditor should strive to cultivate over time. Not only will incorporating data analytics into your audit help minimize risk and improve audit quality, but it can also lead to better insights that ultimately create client value.

Conclusion

To learn more, listen to the full 30-minute Audit Talks LIVE sessions, How to Embrace Analytics in the Audit.