Want to cut hours on your audits? Take these simple steps:
2020 is shaping up to be quite the year, and that is an understatement. While attending the 2020 AICPA Engage Conference, some facts were shared that will keep us grounded in the current situation. Additionally, they’ll also serve as a nudge to take action.
- 85% of CFOs, globally, expect decreased revenue and/or profits because of the business impacts of COVID-19*
- 56% of employees and job seekers, globally, are very concerned about job loss and ability to find a job due to the pandemic**
These stats indicate a pervasive financial insecurity for everyone around the globe. As a profession, CPAs are in the best position to help ensure businesses both react and recover.
Recently we chatted with Michael Holmstrom, a senior manager at Marks Paneth, to understand how they have incorporated analytics in the audit. Even more, regarding how you can take action – which is a great place to begin to help with the reaction and recovery required. Here are some of those insights from our chat:
Action #1 – Understand Why Data Analytics is a Must
First, the Auditing Standards Board is working on an initiative to modernize auditing standards. To add, one of those standards that recently got a lot of attention is SAS No. 142, Audit Evidence. This new standard provides some insights into how auditors can use emerging tools and techniques, including data analytics. What is more interesting is the opportunity to use the same test throughout the audit to work faster and smarter. If you are strategic, then there are times when you can make use of an audit data analytic that simultaneously accomplishes the objectives of both risk assessment and substantive audit procedures.
Audit of the future is clearly going to be a data driven audit that increases the speed of the audit. In addition, it will also increase audit quality and your client service. If this is important to you, then keep reading!
Action #2 – How can analytics help with the audit?
Second, we asked him to share how he uses analytics. Specifically, how does the TeamMate Analytics tool help his firm? Here is what he shared.
Leveraging analytics in the preliminary stages of the audit, during risk assessment, allows them to plan more effectively. Precisely, they use analytic tools to scrape the general ledger and subledgers to identify areas that may conflict with their original risk assessment.
Additionally, beyond risk assessment, other great places to increase efficiencies and quality include performing journal entry testing and revenue testing. Within TeamMate Analytics, they use built-in modules called the Expert Analyzer to look at all data in one shot.
Action #2 con’t
To highlight the power, here is a before and after example with journal entry testing.
- Before TeamMate Analytics – you would typically get a manual entry report from your client. Then, you had to extract it in the general ledger. Either you watched them extract it, or you directly extracted it using some other type of software.
- After TeamMate Analytics – you run the entire general ledger through the TeamMate Analytics journal entry test. All the different anomalies that have come up display, and you can focus in on the manual stuff AND on every area of risk. For example, easily find words or transactions that were posted on the weekends. It’s easy to find any anomaly that stands out completely from the rest of the population – based on scoring. TeamMate Analytics is a huge help in finding efficiencies like that. It really helps dial in to what’s most important to look at versus areas that are not as important.
Oftentimes, though, just getting the data from clients is a barrier to using tools. Therefore, ensure that you build into your overall plan a sub-plan to ingest data. While there are some data ingestion tools on the market, don’t underestimate the power of importing directly from a PDF. Afterall, that is still the most common file type provided by clients.
To continue, Michael also shared that he uses the PDF extraction feature within TeamMate Analytics. Furthermore, he says it’s been a game changer. “it is the easiest, best tool I’ve used to actually extract the PDF and give me super structured data. Because I can put it in any format I want and quickly bring it into Excel. I love that portion of the tool.”
Action #3 – Recruit the right staff
Third, to ensure your firm is set up for audit of the future, you must consider what skillsets are important. As audits shift to become more data driven, it is critical that staff are comfortable with toolsets they’ll use every day. That doesn’t mean they need a computer science background. However, they do need to be proficient with Excel. Michael stated that “the ability to work with Excel is critical, as they will live in it day and night.”
Action #4 – Maximize Realizations, shave off 4-5 hours/audit!
Fourth, it is a misnomer that adding data analytics to the audit will ADD time and work. That is simply not true. While It will require you to work differently, it will ultimately save a significant amount of time.
Here is how Michael made the change happen at his firm:
- First, start with the
low hanging fruit. Prove the efficiencies. Prove that the process is working
before you take that deep dive. We started with journal entry testing. Once
they saw the efficiency with that one test alone, we realized that we were on
the right path. Just that one test alone trimmed down what use to be a
much longer process to just minutes.
- Then, review your current audit process. Determine where you can apply automation to find further efficiencies.
So, now that you understand the importance of analytics and how it can easily be brought to your audit teams, next up is advancing into what else you can do within your audit practice!
Be sure to check out TeamMate Analytics, as it is a must for every CPA!
*Source: PwC’s COVID-19 CFO Pulse, May 2020; global survey of 860+ CFOS
**Source: Edelman Trust Barometer, May 2020; global survey of 13K+