Three Reasons to Learn More about Audit Analytics
In every audit, there are many transactions and accounts that need to be checked, whether they appear especially risky or not. And whether you’re an internal or external auditor, data analytics will help you identify and analyze those audit areas with the same effectiveness as methods auditors have used for decades—maybe even greater effectiveness. Sounds pretty good, right?
So what are the drawbacks preventing further integration of data analytics into the financial statement audit? Most significantly, there’s a need for additional guidance on how to harness the power of audit analytics. Additionally, the profession would benefit from independent research to support the effectiveness of new audit analytics in conducting an audit and meeting audit objectives.
The recently announced Rutgers AICPA Data Analytics Research (RADAR) Initiative seeks to study and find evidence of the effectiveness of automated techniques and data analytics applied in the context of the financial statement audit. This collaborative research effort, which will be hosted by Rutgers University, will explore the application of foundational approaches that can be applied by audit firms of all sizes.
The RADAR Initiative will test theory and methods in a tool-agnostic fashion, and complement efforts of the AICPA Assurance Services Executive Committee (ASEC) and Auditing Standards Board (ASB) to develop an audit analytics guide for profession-wide reference.
Three primary developments will contribute to the increasing use of data analytics in financial statement audits conducted by firms of all sizes:
- Increased recognition of the usefulness of analytics in the context of the audit. Analytics won’t shorten your journey but might improve your itinerary. Many firms from small to large are already incorporating data analytics into their audits. The RADAR initiative aims to support firms’ use by studying how audit objectives that typically require manual processes or sampling (in lieu of looking at 100% of a population), can be achieved more effectively by leveraging technology and integrating data analytics into everyday practice. This will allow you to focus more of your time performing meaningful, risk-based analysis.
- Authoritative guidance. You might experiment with your golf swing or your recipes, but when it comes to applying a new analytical method in an audit, you want to be sure you get it right. As mentioned above, the ASEC and ASB are collaborating on the development of a new Audit Guide on audit analytics to be released in 2017. This new guide will update and expand upon the content of the current AICPA Analytical Procedures Audit Guide, and will be written to be relevant for application by firms of all sizes.
- A research community. Sometimes it’s fun to play solitaire, but you learn more when you play with a group. The RADAR Initiative will be conducted through a collaboration of the AICPA, CPA Canada, contributing CPA firms, Rutgers University, and representatives from other academic institutions who specialize in the subject matter of the research projects being undertaken. To learn more about the RADAR Initiative, please visit rutgers.edu/radar for details.
Amy Pawlicki, Director - Business Reporting, Assurance and Advisory Services and XBRL, American Institute of CPAs.
Audit analytics courtesy of Shutterstock.