Ready to audit everything?
Digital technologies have changed how we live, work and do business—and made data the world’s most valuable resource. Powerful data analytics tools enable organizations to make sense of vast amounts of internal and external data to uncover patterns and anomalies, identify unexpected correlations and make confident predictions.
Digitization and data open up new possibilities for the audit function
Digitization, big data and data analytics are also rapidly transforming the work of the auditor and ushering in a new era of faster, more comprehensive and more accurate auditing overall. These technological advances are making it possible for external and internal auditors to audit everything. The result? Improved assurance, better insights—and more.
Auditors have long understood the role data analysis plays in reaching meaningful conclusions regarding financial statements or internal processes. Yet until recently, technology limitations forced auditors to rely on data sampling in order to reach a level of reasonable assurance as to the accuracy of financial statements or the smooth operation of internal processes. There was simply no practical way to audit more than sample data—to do so would be prohibitively costly and time-consuming.
Today it’s a different story. Companies now collect, record and store all their financial and operational data digitally. And auditors can easily access the processing horsepower and sophisticated analytics tools needed to ingest, model and analyze all of that data—internal, external, structured and unstructured—in the course of their work. This allows auditors to deepen their understanding of their clients’ (or their own) business; gather higher quality, more extensive audit evidence; identify new and emerging risks; improve fraud detection; and deliver and more valuable business insights.
New approaches deliver a more comprehensive picture
Data analytics and other new technologies also enable auditors to test data in new and more efficient ways. For example:
- Previously, an auditor might have had to devote several days to test sample data related to a line item—in a single way. With data analytics, the auditor could test all the data in multiple ways, and use his or her professional judgment to determine which test is most suitable.
- Rather than relying on a sample, an auditor reviewing a car dealership’s inventory could launch a drone to take a picture of the dealer’s lot and then count the vehicles in total—either manually or with technological help.
- Instead of testing a sample of sales invoices or looking at sales process controls, an auditor could run analytics on all sales data and compare against historical or even external industry sales data. This would enable the auditor to better identify anomalies and focus their scarce attention on those—a far more valuable use of the auditor’s time and expertise.
- Rather than laboriously pore over contracts and leases for rates, changes, inducements and the like, auditors could deploy machine learning algorithms to scan the documents in their entirety to detect, identify and report all notable information.
An evolution in progress
The extent to which auditors can capitalize on data analytics and other digital tools to audit everything will vary. Large accounting firms—and the internal audit functions of large corporations—have far more resources to devote to leveraging vast quantities of internal and external data in the course of their work. The largest accounting firms already use data analytics in their audit offerings as a means to add value and reduce risk.
Smaller accounting firms and companies aren’t likely to have the ability to make investments on the same scale. Yet these organizations don’t need to be left behind as auditing evolves: they can access data analytics capabilities through a combination of third-party software and cloud-based data analytics and other digital tools. These third-party services can make a huge difference for smaller accounting firms and internal audit teams—enabling them to deliver more confident assurances and better insights faster and more efficiently than before.
Auditing is changing fast in our digital world. The good news is you don’t have to be left behind.
To learn more about how digitization, big data and data analytics are changing auditing, read our new whitepaper.