- Data analytics can make audits more efficient and the industry is investing to improve the technology
- Auditors of SMEs face challenges with data acquisition, staff upskilling and software costs
- Data analytics will evolve and become a standard tool for auditors
This article was written by Craig Waldon, CaseWare Australia & New Zealand
If you have been keeping an ear to the industry wall, you will have heard how the Big 4 audit firms are successfully leveraging data analytics in their audits, as well as the copious investment being made into developing this technology further.
Audits can benefit greatly from data analytics. The opportunity to examine all of the transactions in a database, such as the sales ledger and payroll, and have trends and anomalies highlighted will assist auditors to assess risk, perform substantive procedures and review controls. Analytics has the potential to affect the quality, reliability and value of audit as a whole, by making the audit process more thorough and effective.
But Craig Waldon, CEO of CaseWare Australia and New Zealand, says the smaller end of town who are more likely to be dealing with SME clients, may not be keeping pace with the Big 4 firms when it comes to maximising the opportunities of analytics technology – there are still challenges to be overcome.
The great divide between analytics and its function
In discussions with industry contacts and auditors outside the Big 4 about the current use of analytics within the industry, CaseWare found that:
- A lot of auditors have only a hazy definition of what data analytics is and how it can be applied to an audit.
- Not many auditors have great access to source data in usable forms or to data that can be easily imported into programs or databases.
- Very few auditors are skilled in using advanced analytics tools, or in creating suitable tests.
Some of the major concerns expressed by smaller practitioners about the use of analytics within the SME audit, in particular, included acquiring correct data, complexity of fraud and transaction procedures, upskilling of current and future staff, and the software investment required to meet the full potential of the technology.
Transforming data roadblock into opportunity
While auditors are increasingly expected to utilise access to raw data and make it an integral part of an audit, those dealing with SMEs face the challenge of incomplete, incorrect or unclean data sets that sometimes may not be able to be imported efficiently into a range of audit tools. “With limited data available to the auditor of an SME, it cannot be expected that data analytics will be able to complete all of the substantive phases of the audit,” Waldon advises.
It takes a team effort to tackle the data issue. Naturally, auditors must ensure they equip themselves with the knowledge of how to apply analytics technology. As trusted advisors they can take up the unique opportunity of educating their clients about the benefits of data analytics as well as, importantly, what an effective data set looks like and the steps SMEs can take to produce data that is usable for the audit. All stakeholders are to benefit from the results of a smoother and more effective process.
“The greatest roadblock for applying data analytics effectively to audits right now is data integrity and validity. But this is a potential goldmine for clients, auditors and the sector as a whole when data access and data quality issues can be solved successfully.”
Tools to address audit complexity
By being able to analyse an entire data set instead of a sample, data analytics has the potential to contribute to a more thorough and reliable audit. On the flipside, it might also contribute to increasing the complexity and length of the audit process, especially if the tests produce more outliers for the auditor to address.
“The challenge for auditors of SMEs is to use analytics to improve the quality of the audit and provide greater client value add, without increasing the cost of the audit”, says Waldon.
Increased audit complexity may raise costs and require more staff training, but there is a range of software tools to assist with running data analytics tests, including easy to run standard and approved tests, as well as data visualisation functionality to help auditors understand and interpret the data with minimal training.
“The future for data analytics is very bright. It is increasingly becoming a significant tool for auditors to use. Smaller practitioners have an important role to play in educating and empowering clients,” Waldon believes.