Data, Data! Key to Auditors

"Fundamentally, we [auditors] still need to answer the same question--whether we are using technology or not--that is whether the financial statements are fairly presented and are free of material misstatements,” said PwC Principal Michael Baccala at the Financial Executive International’s annual Current Financial Reporting Issues (CFRI) conference in New York. “But, how we answer the question would be different if we leverage technology.”


Baccala was joined by fellow panelists KPMG Partner Roger O’Donnell, Deloitte Chief Innovation Officer Jon Raphael, and Ernst & Young Partner Hermann Sidhu.



Data Is the Key


Data analytics are already “leveraged” by auditors.


“There are four types of data analytics,” Baccala told the conference. “Descriptive analytics, diagnostic analytics, predictive analytics, and prescriptive analytics.”


Descriptive analytics and diagnostic analytics are used to conduct trend analysis. They are used by auditors to help answer the questions what has happened and why something has happened.


“Predictive analytics is when artificial intelligence comes into play. Auditors will be able to know the probabilities of what is going to happen. While auditors will be able to get feedback from prescriptive analytics.” Baccala explained. “The data, information, is out there. It is just the matter of how the data is gathered and organized, and how it is presented to the auditors.”


Baccala told Bloomberg tax that “computers and technology won’t add any value if we simply use them to store data.” By leveraging data analytics and other technology, auditors will be able to use better informed judgment and conduct higher level analysis.


Technology and Audit Procedures


“Technology really changed the dynamic of how subledger transactions are reported.” O’Donnell said. “We are able to look at all the transactions across [an] entire system globally and identify where the anomalies and exceptions are, so that we will be able to understand and determine where the differences are and how we want to spend our time.”


O’Donnell told the conference that by being able to understand how an entire system is functioning and being able to apply traditional audit techniques, auditors will be able to better understand the data in the system and be able to better interpret the data. “Technology is changing the way sampling is done. Technology enabled us auditors to look at the entire population instead of conducting random sampling.”


Challenges Faced by Auditors and Audit Firms


“When you think about challenges,” Baccala said, “it is really the data at the end of the day.


How we are gathering, organizing the data, and making sure that the data is completely accurate and reliable. Ensuring the transparency and security of the data is also a challenge that most companies are facing.”


Other challenges for audit firms, according to Sindhu, are the initial investment in technology and “the future investment in people, making sure that the people have the necessary skill [to leverage technology in their day-to-day work].”


O’Donnell agreed and stated that, “We need a combination of different skills in audit teams. We need data specialists--people who extract data, understand the systems, who can bring all the data available to us. We also need analysts--people who have critical thinking skills; those people who are not only able to look at a single transaction, but also are able to analyze the entire population, the entire system. That is a transformative exercise for the audit profession.”

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