Data Analytics in Audit
Both auditing and data analytics date back centuries and as technology continues to advance the two practices have found synergies in a way that did not exist before. The conversation around data analytics typically revolves around using it for different forms of market analysis, but analytics has also proven to be hugely beneficial for auditing purposes. Data analytics can be particularly useful for big firms that manage large amounts of data within their accounting systems as it allows for more information to be processed at once. While data analytics offers companies a lot of benefits there are also some drawbacks, and in this post we will provide you with information to help you weigh the pros and cons so you can decide whether it is right for you.
Without making any assumptions about your knowledge of data analytics we will start by giving a brief explanation of what it is and how it can be used in the context of auditing. Data analytics is the process of transforming and modelling raw data in order to analyse it, identify trends or extract other valuable insights. Auditors use data analytics to help improve audit quality as it allows for the extraction and transformation of large amounts of data for analysis. Data analytics tools are immensely helpful for making information easier to understand and process, which makes it simpler for auditors to identify risks and see more clearly how a firm is performing.
As mentioned above, one of the main benefits of data analytics in auditing is the improvement in audit quality. In addition to quality improvements modern data analytics tools also help increase audit efficiency. The increasingly clear pictures that data analytics tools help paint mean auditors are able to better understand the organisation than they would with only raw data sets. Trends, anomalies and outliers can be identified more easily and faster and any underlying risks that these patterns present or may result from, such as fraud, can be quickly fished out.
While improved technology around data analytics is helping to streamline the auditor’s jobs, by reducing the time that has to be spent on making sense of data and allowing for more time to analyse it, there are some disadvantages that need to be taken into consideration. Though auditing is a highly regulated practice with extensive guidelines to help ensure consistency and accuracy, the use of data analytics in the field does not have any explicit rules or standards spelt out as yet. This gap in guidance can present risks which are further exacerbated by the lack of uniformity in the data analytics tools used, with some firms developing their own systems and others purchasing off the shelf data analytics software. Given Baker Tilly’s expertise in the digital space we also cannot ignore the potential security risks that storing copies of large amounts of confidential information, sometimes on third party systems, also presents. Additionally, adding new systems to audit processes may require training of staff in how to use the data analytics tools and fully understand the output generated, and while up skilling your staff is always positive it can also be time consuming and costly.
As data analytics become increasingly accepted across industries perhaps we may see a time where it is officially accepted and integrated into auditing under official guidelines and regulations. Data analytics has shown clear value across many applications and, if used right, could be of tremendous benefit to your firm, but before making the move make sure you extensively weigh your pros and cons and with the above information you now have a place to start in your decision-making process.