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Audit Data Analytics Resources

Susan B. Anders, PhD, CPA/CGMA

As information providers, accounting professionals are at the forefront of applying new technologies and resources to practice issues. The SEC has made use of data analysis and statistical modeling with its Accounting Quality Model (AQM) and Corporate Issuer Risk Assessment (CIRA) programs. In a speech to the American Accounting Association Midwest Regional Meeting in October 2016, Scott Bauguess provided a broad picture of how the SEC views “big data” (“Has Big Data Made Us Lazy?” http://bit.ly/2rIrmh7).

Corporate issuers and auditors no doubt want to similarly harness the benefits of technology when faced with such intense scrutiny by “Robocop” (a not-so-affectionate nickname for AQM). This month's review focuses on the intersection of big data and auditing. Deloitte and Ernst & Young offer several free and low-cost resources on their respective websites to aid in learning more about accounting applications of data analytics. The materials are targeted to clients and potential clients, but many are sophisticated enough to benefit CPAs looking for basic information on data analytics and its relevance to auditing, as well as pick up some ideas about industry practices.



Deloitte's website (http://www.deloitte.com) has at least two main pages that serve as good starting points for information on data analytics. Deloitte Analytics is a more general focus on the consulting side (http://bit.ly/2qOsL5P). Audit Innovation pulls together a variety of audit technology topics (http://bit.ly/2qc67T1). Deloitte members have also published short articles on audit innovation in popular publications that can be accessed through Deloitte's web pages.

“How Artificial Intelligence Can Boost Audit Quality” (CFO, June 2015) discusses some of the benefits of automating audit tasks, allowing auditors to focus on advanced evaluation techniques and professional analysis (http://bit.ly/2q301ZM). One example is cognitive technologies, which can identify terms and clauses in a large population of documents for a variety of review purposes. Automation can streamline the confirmation process by pulling together all of the supporting materials that are normally attached to a confirmation. In addition, smartphone technology can be adapted to inventory observations.

“Audit Innovation Helps Private Companies Improve Performance” (Accounting Today, May 2016, http://bit.ly/2rkNhLK) provides a non-technical overview of the scalability of artificial intelligence, workflow automation, and data analytics to private companies, with a particular emphasis on Deloitte practices (http://bit.ly/2rKSD1Q). The authors state that new audit processes can not only free auditors' time for more productive activities, but also reduce time spent collecting and compiling data for the auditors, which is important from a client service perspective.

Two of Deloitte's 2017 surveys focus on technology issues. A survey of 300 U.S. senior executives at companies with $500 million or more in annual revenue revealed that 61% had at least a basic knowledge about blockchain technology (http://bit.ly/2rKORWf). Of the respondents familiar with blockchain, 21% have already invested in the technology, and another 25% plan to do so within the next year. Interestingly, the currently largest investors in blockchain resources include the consumer products/manufacturing and technology, media, and telecom industries.

The Tech Trends survey examines eight data analytics trends expected to gain momentum within the next two years. The report can be downloaded as a 130-page PDF (http://bit.ly/2qOEqS4), reviewed as its own website (http://bit.ly/2qOrjQK), viewed as a collection of three-minute videos on each trend (http://bit.ly/2qMGGLy), or downloaded as an iPad application (http://bit.ly/2rt5IjS). One of the trends is blockchain, which covers three levels of the technology: 1) storing digital records, 2) exchanging digital assets, and 3) executing self-governing contracts. An interesting discussion of some of the ethical and social issues of blockchain is available in an 18-minute podcast (http://bit.ly/2rtxwEI).

Ernst & Young

Ernst & Young (http://www.ey.com) has no specific landing page for data analytics-related resources, but readers can either perform a keyword search or check out the items described here. Ernst & Young's Reporting magazine regularly carries technology topics related to reporting and governance.

“The Value of Data Analytics” (Reporting, May 2014) makes the case that data delivers value to businesses by providing “actionable insights” regarding growth, efficiency, and risk management. Storing large amounts of data is no longer difficult; the question is now “Which data do we store?” The article presents an interesting discussion on using the availability of big data to reduce risks by enabling 100% risk assessment of specific transactions, as compared to statistical sampling methods (https://go.ey.com/2r9i5la).

Ernst & Young

“How Big Data and Analytics are Transforming the Audit” (Reporting, April 2015) addresses the usefulness of data analytics in rethinking how audits are performed and discusses current barriers to achieving the full benefit of these tools (https://go.ey.com/2qOUJOY). Obstacles include the facts that companies have expended substantial efforts and resources to protect their data and that management can be understandably reluctant to open the data to auditors. Accounting systems that house data are remarkably varied, even within a single company, making retrieval all the more difficult. Auditing standards also need to be brought into line with analytics processes, covering substantive procedures, data validation, and defining audit evidence and materiality.

Ernst & Young's website also provides some basic information on blockchain, including a three-minute video that illustrates the decentralized nature of a distributed database (https://go.ey.com/2r9sD3E). Each data block is linked to the previous block by an algorithm; multiple connected blocks form a chain, the source of the name “blockchain.” The data is shared by a large number of users, each of which can see if data has been modified.

A related article, “Building Blocks of the Future,” was originally published in Reporting (September 2016), but is also available as a PDF (https://go.ey.com/2rtv7cW). Blockchain can enable real-time auditing, as every transaction creates an unchangeable record. All transactions can be analyzed for unusual patterns and outliers. As the still-necessary decision makers, human auditors can then focus on whether control mechanisms and systems are functioning properly. The article also includes an informative discussion of negative aspects of blockchain, such as vulnerability to programming mistakes, slowness, power demands, privacy concerns, and lack of industry standards and regulatory guidance.

Readers are likely concerned about the security issues created when relying on such large amounts of data in a virtual environment. Ernst & Young's “Global Forensic Data Analytics Survey” for 2016 provides some insights from a survey of over 600 executives across the globe and nine industry sectors (https://go.ey.com/2r9oIEj). Users can access the executive summary on Ernst & Young's website or download the 36-page PDF report. Respondents indicate that the fastest growing security threat is from cyber breaches and insiders, with the largest perceived risks being in the financial services industry. Interestingly, participants in manufacturing and transportation reported the lowest level of expected risk. The two largest factors in forensic data analytics deployment are response to cybercrime risks and increased regulatory attention.

Background Reading

Association of Certified Chartered Accountants (ACCA) Divided We Fall, Distributed We Stand: A Professional Accountant's Guide to Distributed Ledgers and Blockchain (free PDF): http://bit.ly/2rIcXl7 or http://bit.ly/2qc6PQk

Independent Chartered Accountants of England and Wales (ICAEW) Data Analytics for External Auditors (free download, 36-page e-book or PDF): http://bit.ly/2rKYDr7

International Auditing and Assurance Standard Board (IAASB) Request for Input: Exploring the Growing Use of Technology in the Audit, with a Focus on Data Analytics (free PDF): http://bit.ly/2q3a0hY

Institute for Internal Auditors (IIA) Global Technology Audit Guide (GTAG): Understanding and Auditing Big Data (free for members, $25 for nonmembers): http://bit.ly/2rIgwrt

Susan B. Anders, PhD, CPA/CGMA is the Louis J. and Ramona Rodriguez Distinguished Professor of Accounting at Midwestern State University, Wichita Falls, Tex. She is a member of The CPA Journal Editorial Board.

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