audit analytics
Tax & AccountingOctober 18, 2021

How to Get Started with Audit Data Analytics

By: Wolters Kluwer Tax and Accounting

Forward-thinking firms are adopting data analytics tools into their audit processes. Audit data analytics help firms deliver a high-quality audit, control audit costs, and create better conversations with clients. But many firms could use a little help getting started with audit analytics. Where and how should you use analytics? What’s the secret to finding the right analytics tool? What about training?

To answer these questions and more, Wolters Kluwer’s Colleen Knuff and Stefan Davis sat down with Michael Holmstrom, a Senior Manager at Marks Paneth. They discussed what it takes to get started with audit data analytics and how professionals at Marks Paneth leverage the TeamMate® Analytics tool in their audit process.

Watch the On-Demand Webinar to hear the complete conversation. This article will summarize some key points from the webinar.

Why do Firms Need Audit Data Analytics?

Firms can use analytics to address many common challenges. Today, clients view audits as a commodity and they are exerting downward pressure on audit fees. Audit analytics can help auditors perform more comprehensive testing in less time, helping to hold down the cost of an audit even while increasing the quality of the audit.

At the same time, clients are asking firms to help them wrap their arms around a growing volume of corporate data. Clients want to consult with firms that can help them derive actionable intelligence from their data—insights that will help them grow their businesses. So, good audit data analytics can help firms expand their consulting opportunities and better satisfy clients.

What Areas of an Audit Will Benefit From Analytics?

When professionals think about data analytics, most consider things like extracting samples or creating visualizations. But that thinking is too narrow; data analytics can be applied throughout the entire audit. Use data analytics to inform planning, test against full data sets, spot hidden risks, and add value to reports. Here are a few good areas for application:

Risk assessment and planning: Analytics can help ensure you’ve identified the areas of greatest risk and focused your testing plan on those areas. Consider using trend analysis and predictive analytics to assess how the business is performing compared to the expectation.

Getting away from sampling: Use analytics to replace sampling with 100% testing. Sample sizes keep getting bigger as the volume of client transactions grows. It’s becoming less efficient to do sampling and analytics can test 100% of data more quickly than sampling. When sampling is unavoidable, audit analytics can help auditors efficiently select a robust sample while minimizing the sample size needed. One example of that is using monetary unit sampling because that can often give a smaller sample size, yet greater coverage.

Substantive tests of details: Audit analytics make it easier to corroborate or cross-check pieces of client data against one another quickly. An example would be making sure an order matches the invoice and matches the goods receipt. Auditors can check this across a huge amount of transactions running through the business. Auditors can also look at year-over-year trends, for example, sales by customer, and use substantive analytics to find anomalies with significant deviations.

Internal controls testing: Auditors can use analytics to validate the application of controls for every instance. Instead of sampling 30 instances of a control that has happened 2000 times over a year, auditors can test quickly at every application to ensure controls operated effectively.

Spotting red flags of fraud: Analytics can help the auditor look for instances of fraud, whether it's payroll fraud, accounting fraud, or any other fraud as driven by your audit risk assessment. Use risk indicators to pull out the riskiest transactions from journal entries and do a deeper analysis.

Tax & Accounting Resources

Audit Talks Podcast

Learn from Audit Experts at Your Convenience

Michael Holmstrom described how using analytics and 100% testing has enabled his firm to present a better deliverable to clients:

“[In journal entry testing] we have nine or 10 different tests that we're going to run over that entire population and look at a 100%. We don't even extract out the manual entries; we look at everything. While yes, we're looking at the entire general ledger, our selections are much more reduced, because now we're only hitting on things that are really risky and things that are popping out at us are being brought to the visualization. Once we're done with our audits, we have this robust analytic platform we can actually lay that over now with Power BI. Upon finalization to our clients, we're presenting them a booklet of information and walking them through how we got everything. The access to the data and the analytics performed over the audit and the finalization package really has made our audit more substantive and better looking to the client. Now they're getting something at the end of the day. Now they feel like they're paying for something.”

How Should Firms Get Started With Data Analytics?

Someone in the firm needs to drive the analytics journey. Firms don’t begin with analytics at every stage of the audit. That’s the ultimate goal, but to achieve it, firms need to integrate analytics into one area of the audit at a time, while training staff and championing the analytics tool(s). At Marks Paneth, the analytics champion is actually a team that leads the firm-wide analytics initiative.

To get started with analytics, firms should focus on the low-hanging fruit. Apply the Pareto Principle and focus on the 20% of activities that would deliver 80% of the results. Many firms start with journals testing because it is a big area that’s relatively easy to incorporate data analytics into, so it’s a quick win for your analytics journey. Every client has a general ledger, so this is needed on every audit and is relatively consistent from one client to another.

When a firm is starting out with audit analytics, it’s important to choose a tool that is easy to use and will be as intuitive as possible for auditors to learn. Providing staff training will also be integral to success. One of the reasons Marks Paneth chose TeamMate Analytics is that it operates within Excel and staff were already very familiar with how to use Excel.

Learn More About Getting Started With Audit Data Analytics

During the On-Demand Webinar, the audit analytics panel shared more details about good ways for firms to begin incorporating analytics, how to choose the right tools and the value of piloting audit analytics technology. Watch “Steps to Get Started with Audit Data Analytics” for additional tips.

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and expertise that helps tax, accounting and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed and accuracy.

Back To Top