Using audit data analytics for the first time? Read this now

Audit data analytics (ADAs) allows auditors to leverage the power of technology to analyze massive amounts of data, thereby enhancing the relevance and quality of financial statement audits (Getty Images/Hero Images)

Data: it’s everywhere. And as time goes on, more and more of it is available to organizations of all types and sizes improving their operational decision making. Still, access is one thing; using the data to yield valuable insights is another. 

As Kaylynn Pippo, CPA and principal of research, guidance and support at CPA Canada, explains, “Larger quantities of data alone aren’t necessarily valuable; leveraging the tools for analyzing the data is where the value comes in.” 

Fortunately, audit data analytics (ADAs) allows auditors to leverage the power of technology to analyze massive amounts of data, thereby enhancing the relevance and quality of financial statement audits. “ADAs can really play a role in providing value to clients and I think many clients are expecting that added level of service,” says Pippo. 

Currently, Canadian Auditing Standards aren’t prohibiting the use of ADAs but they don’t include it, either. This might make some auditors more cautious about taking the plunge. Still, use is likely to grow. As the Canadian Public Accountability Board pointed out in a recent publication, “We support continued innovation in this area to improve audit quality.”

CPA Nicole Deschamps, senior manager, audit and assurance, at Deloitte LLP, and a member of CPA Canada’s Audit Data Analytics Committee, agrees. “There are so many reasons why ADAs are important now and will be in the future,” she says. “They are definitely here to stay and are an important part of how audits are done.” (Deschamps also sits on the Rutgers-AICPA Data Analytics Research Initiative Advisory Board and worked on both the Audit Data Analytics Guide published by the AICPA and CPA Canada’s Audit data analytics guide, which is based on the AICPA guide.) 

As the use of ADAs increases, however, smaller firms that don’t have the resources to invest in a platform or the in-house expertise to develop their own tools will face challenges. They may also not know what software to use or how to integrate ADAs into the audit process.

To guide them, CPA Canada’s Audit Data Analytics Committee sought insights from external auditors from nine public accounting firms already using ADAs. Results were captured in An inside look at how auditors in Canada are using audit data analytics, written by Greg Shields, CPA, and edited by Pippo.

Here are the tips, as summarized by Pippo and Deschamps.

1. WALK THE TALK

Set a positive tone from the top down for using ADAs. For the larger firms, this would be the national office, says Pippo, whereas for smaller firms with no national office, it would be the partners. “It’s really just about having a firm strategy that supports the use of data analytics,” she says. 

2. SET REALISTIC EXPECTATIONS

You may want to do it all, but accept from the onset that there may be setbacks, says Pippo. Deschamps agrees: “People need to realize that applying ADAs isn’t something that happens overnight—it’s a journey both for our clients and ourselves. Getting the right data in the right format takes time.”

3. START SMALL

Implementing analytics across the entire audit engagement right away may not be possible. “You could start off with easier analytics first, such as those used for testing journal entries, then move on to something more complex, such as those used in auditing revenue, receivables, and so on,” says Pippo.

4. LOOK TO THE EXPERTS 

Everyone in the audit chain—from engagement staff to partner to client—should  be comfortable with ADAs. Smaller firms without in-houses specialists in ADAs will require training. “CPA Canada has a lot of publications available, including the Audit data analytics guide,” says Pippo. 

5. COMMUNICATE OBJECTIVES

As Pippo explains, you need to think through the stages of the ADA. She explains: “For example, what specific audit objectives do you want to achieve? What data do you need from the client in order to satisfy those objectives? What format does it need to be in? Is it possible to obtain it? If so, what tools will you use? And are they appropriate for that data?”

6. ENGAGE CLIENTS

Have a conversation with the clients at the outset so that they understand what’s changing, what you will need from them and why it’s beneficial to use ADAs. As Deschamps explains, “The biggest hurdle for engagement teams in applying ADAs is getting the data in a good format. So it’s important to start those conversations early. If you can do test runs of the data, that will really help you to avoid running into issues later on.”  

7. GET A HEAD START

Take the time to formulate an appropriate plan, advises Deschamps. If specialists are involved, make sure you have coordinated their involvement. As Pippo explains, some people might consider doing ADAs in parallel with traditional procedures the first year, just in case the ADAs don’t work or the audit team isn’t able to get the data they need to conclude on the procedures they’re performing. 

8. ANTICIPATE SETBACKS

You might have to change your original plan as issues arise, notes Pippo. Set realistic timelines and milestones, recognizing that delays are often inevitable. Maintain open communication between the auditor, management and the audit committee to discuss any issues encountered. 

9. COMMUNICATE RESULTS

Document and communicate the results of your analysis effectively, both internally (within the audit file) and to the management and the audit committee. This will vary dependent on the ADA. Visualizations—such as graphs and bar charts or plotting tools, for example—can tell what the ADA revealed, says Pippo.  

10. BUILD ON EXPERIENCE

Once the audit is complete, you can debrief the team and client strategizing how to do things differently next year. As Deschamps points out, “Maybe you’ll conclude that you weren’t 100 per cent successful this time. But going forward, the process is likely to be much easier because of the knowledge you obtained the first time around. So ultimately, it’s about continuing to move the bar forward and challenging yourself to use ADAs.”  

DIVE DEEPER INTO AUDIT DATA ANALYTICS

See CPA Canada’s publication, An inside look at how auditors in Canada are using data analytics, as well as its Audit data analytics guide.