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Your five-step guide for using data analytics in an audit

Data analyticsYour clients have a lot of information. And you, being the forward-thinking CPA that you are, want to use new technologies and techniques to get the most out of that data. So where do you begin?

Audit data analytics (ADAs) is a great place to start. Using tools you already have – Excel, for example – you can analyze entire populations, find anomalies and identify patterns. To help you on your way, we’ve outlined five basic steps for planning, performing and evaluating the results of an ADA used to perform an audit procedure.

  1. Plan the ADA.

The first step is to develop a solid plan. Figure out what information you’ll be reviewing and what you want to get out of it. Are you performing a risk assessment procedure, substantive analytical procedure, or test of details? Or are you seeking to form an overall conclusion from the audit? Once you know your objective, then think about the population of data you have available. Give preliminary consideration to how available, relevant and reliable it is (you’ll consider this in more detail in step 3). Finally, identify which specific ADA procedures, techniques and tools you’ll use.

  1. Access and prepare the data for purposes of the ADA.

Once you obtain your data set, check that your data is in a usable format.

  1. Consider the relevance and reliability of the data used.

Make sure you fully consider the appropriateness of the data you plan to use. Is it internal or external? How was it obtained? What process was used to produce it? For example, although exceptions may exist, information is generally more reliable when it:

  • Comes from an independent source outside the entity being audited;
  • Is obtained directly by the auditor through observation or similar means;
  • Is provided in documentation form, rather than orally; and
  • Is an original document, rather than a copy.
  1. Perform the ADA.
    Your initial results could identify items that may warrant further consideration. If you think this is the case, first consider if your ADA was designed and performed appropriately. If not, make changes as necessary and perform the ADA again. Then, plan and perform additional procedures on those notable items so that you can achieve the objective you identified in step 1.
  1. Evaluate the results and conclude whether the purpose and specific objectives of performing the ADA have been achieved.

Did you achieve your objective? If not, you’ll need to plan and perform different procedures. If so, congratulations! You’ve successfully planned and implemented the use of ADAs in your audit.

Throughout each of these steps, confirm you’re documenting your work in accordance with Generally Accepted Auditing Standards. The AICPA has free tools and resources to help you.

Want even more? Check out the AICPA’s brand-new Guide to Audit Data Analytics, from which the above steps were extracted. The guide:

  • Provides in-depth information and includes illustrative examples showing how to apply the above process step by step;
  • Includes specific items and examples to consider when dealing with the reliability of data; and
  • Offers a process for dealing with and filtering through a large population of notable items or items that may warrant further analysis.

You can also learn more by watching a live webcast on ADAs on Dec. 18, or by visiting the ADA resources webpage.

Lindsay Patterson, CAE – Senior Manager, Communications and Public Relations, Association of International Certified Professional Accountants

Data analytics courtesy of Shutterstock

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