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Data analytics is increasingly impacting the audit world, helping auditors get a better insight into business data throughout the process. The use of data analytics software in auditing services allows for examining large data sets and generating data analytics without the help of data scientists or related experts.
This comprehensive guide will help you understand the role of data analytics in auditing.
Table of contents
● What is data analytics?
● How do audit firms use data analytics?
● Example of data analytics in the audit process
● What are the advantages of data analytics in the audit process?
● Wrapping up
What is data analytics?
Data analytics is analysing raw data and drawing conclusions based on your findings.
Though it has been around in different forms for a long time, auditors find it an increasingly valuable and timely method to obtain data insights and enhance audit operations. It allows you to identify opportunities, harness cost savings, and enable faster and more effective decision-making.
How do audit firms use data analytics?
Data analytics, when used in obtaining audit evidence in a financial audit, is the art and science of discovering and examining patterns, deviations, and inconsistencies. It also helps extract underlying information in the data or related to the audit’s subject matter by analysing, modeling, and visualising the purpose of planning and performing the audit.
Previously, auditors were using computers to analyse data in performing audits since organisations adopted their first computerised accounting systems, and the process was known as CAATs (computer-assisted audit techniques).
It was used to analyse data sets to identify whether they met specific characteristics for further testing by the team and was tailored very specifically to the entity being audited. With the continuous development of technology, an auditing firm UK now uses data analytics.
Auditing firms, irrespective of size, use data analytics as a part of their audit services to reduce risk and add value to the client’s business. It has improved the overall audit quality, allowing auditors to perform an audit with large amounts of business data.
There is no universal data analytics tool, but each has the power to turn all the data into pre-structured forms or presentations. These are understandable to auditors and business owners and generate audit programs per client-specific risks or transfer the data directly into computerised audit processes. Now, the auditor can conclude more efficiently.
Example of data analytics in the audit process
Many audit firms have integrated audit analytics throughout their audit process and expect professionals to have appropriate levels of technological competency.
Here are a few areas where audit analytics have been successfully used.
● Analytical review
It involves the preliminary analysis of all business transactions taking place during a fixed period. The result not only gives valuable insight into the nature of business activities but identifies trends and inconsistencies that indicate potential risks and concerns requiring specific audit focus.
● Substantive testing
Data analytics is used to evaluate transactions to check if they are complete, valid and accurate.
● Fraud detection
Analytics tools identify fraud indicators by analysing transactions.
What are the advantages of data analytics in the audit process?
● Better risk management
Data analytics in the audit process has improved risk management throughout a company. It isn’t feasible for auditors to review all data manually and make accurate conclusions when you are using accounting practices to spot financial risk or checking IT records to find cybersecurity risks or anything else.
On the other hand, if the auditor is using limited data samples to compensate for what would otherwise be information overload, they can leave risk management gaps, as the overlooked data may contain essential outliers. Data analytics can review large quantities of data and help auditors to spot and understand any risk in business.
● Improved assurance
Another benefit of data analytics is providing greater assurance. It offers a systematic and complete review of business processes, making it easy for auditors to see whether their findings from different departments align with each other.
For example, an audit team might use data analytics to examine your business’s financial data, such as transaction logs, to check for any inconsistencies. These results can be shared with other departments, like the risk management and compliance teams, to see if their findings are in sync.
By using data analytics software, auditors can mainly visualise the data and compare the results.
● Greater efficiency
Data analytics doesn’t only improve risk management and insurance but helps auditors save time. Data analytics auditors can review hundreds of thousands of data entries simultaneously. It improves their efficiency in terms of planning, conducting, and presenting an audit process.
Collecting and thoroughly checking data using manual processes is time-consuming and extends the overall audit process. But with data analytics, you can quickly gather and analyse the data to generate accurate reports and focus on further audit steps that require more human touch.
● Clear reporting
Auditors can use different data analytics software to facilitate clear and impactful reports. This software can create data visualisations like charts and graphs that clearly view audit findings. Thus, auditors have better evidence in hand to create accurate reports.
Without data analytics, auditors need to spend more time communicating through long excel tables and wordy explanations. However, when you have these analytics tools in hand, you can generate clearer audit reports for senior management, shareholders, investors, or regulators and give a true picture of your business finance.
● Improved overall audit quality
Data analytics positively impacts every step of an audit process and improves it in some way or another, thus improving the overall audit quality. Auditors can use such tools throughout the process, from audit planning to testing and reporting. It gives them a better understanding of their work.
Hire an Auditor
Work with UK-based Experts for tax, audit, accounting, payroll, & EIS/ SEIS needs.
Wrapping up
Data analytics improves auditors’ visualisation ability, unlocking their brain’s analytical power, eliminating much of the manual data collection work, and allowing auditors to use more time to provide value-added analysis. If you are hiring an auditor or an audit firm, ensure they are using data analytics tools, as they guarantee accuracy in audit reports.