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How Data and Analytics Are Enhancing Audit Quality and Value

James P. Liddy, CPA

The best business advice is often the simplest, and so goes the adage to practice your ABCs—always be changing. This call for continuous improvement is especially relevant in today's audit profession, which has been impacted by the emergence of new information technologies.

Using Technology to Build Value

Perceptions about an audit's value have changed dramatically in recent years. Audit committees, management, and shareholders demand more effective audits, broader assurance, and deeper insights. in response to these demands, KPMG is making significant investments in its data and analytics (D&A) capabilities. The firm has introduced software that enables global audit teams to share information across borders and with clients in a secure environment.

The manual audits of the past tended to rely on the detailed analysis of a relatively small sample of a client's total transactions. We are now able to review millions of data points simultaneously. Advances in technology and D&A enable today's auditors to analyze a client's transactions and sift out meaningful information that can help auditors better identify risks and enhance the quality of their services—as well as provide valuable insights to businesses working to improve their processes and make better decisions.

As emerging technologies have expanded capabilities to capture, aggregate, and organize information to sift out broad facts, we are working to tame the proliferation of available data and place it in the hands of highly skilled professionals who can use sophisticated technologies to extract insightful information that can enhance the quality of auditor judgments and the insights provided to businesses. Expanded D&A capabilities have enabled auditors to test larger and larger data populations—in some cases up to 100% of a company's transactions—and compare the results to reveal meaningful patterns across businesses and geographies.

For example, in addition to the assurance that comes with a quality audit, the evolving methodology and technologies can also provide benchmarking and best-practice comparisons by process across industries. The result can help both the organization and its auditor understand how it compares to others in terms of closing its books, processing invoices, the effectiveness of internal controls, and identifying controls or processes that can be improved.

What's more, these dynamic techniques can be a powerful contributor to audit quality, enhancing the assessment of risk and empowering auditors with expanded knowledge. More data coupled with better insights provides robust audit evidence, from which auditors can investigate the business reasons behind outliers and anomalies. These insights provide auditors with a broader business understanding and can enable them to ask more meaningful questions during the audit and focus on higher-risk areas.

Improving Audit Quality

Digging deeper using technology can help achieve the ultimate goal of enhanced audit quality. Consider the scenarios of comparing every sales invoice issued during the year with all cash receipts obtained from external bank feeds; or testing 100% of sales/payment transactions to identify both potential and initiated segregation of duties conflicts; or performing the three-way match over a company's sales/payment transactions. When this powerful supportive evidence is contemplated, it is clear that D&A capabilities are transforming the audit landscape.

Ultimately, the true value of data comes from the insights that emerge from it. Auditors can leverage the data we are already examining to better identify how information can be turned into insight—to enhance the audit quality and benefit audit committees and management. These insights include additional perspectives on risk exposure, company performance, and operations. Many of the companies we audit are already seeing value in D&A-driven insights.

For example, as companies filed conflict minerals reports for the first time last year, many uncovered new efficiencies as they gained visibility into their supply chains. some are using this information to exert better risk controls over suppliers and rationalize supply chain operations. in turn, investors and consumers may make purchasing decisions that consider both socially conscious sourcing for components of the company's products, as well as a more controlled and effective operating environment. in this way, external auditors are bringing multidisciplinary strengths and business insights to bear as a result of audit work they are already performing.

Innovation in any business is key to sustaining its utility, relevance, and value; for our audit capabilities to continue to meet the expectations of the capital markets, we too are innovating. The evolution of the audit is not merely about tools and technology—it's about audit quality and stewardship. Audit professionals have unprecedented capabilities to provide companies with meaningful business insights, while executing on their primary objective of enhancing audit quality. The net effect of this transformation will be tremendously positive, both from an organizational and investor point of view.

James P. Liddy, CPA. KPMG LLP's U.S. vice chair, audit and regional head of audit, Americas. KPMG has built a technology infrastructure to support its 162,000 professionals in 155 countries.

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