11. Data Analytics Software (Inflo)

Question 1

What can data analytics assist with?

Answer 1

1. Transaction analysis
   e.g. looking at 100% of transactions to identify where controls have failed or been bypassed
2. Judgemental areas
   e.g. using sensitivity analysis to test assumptions on the net realisable value of inventory
3. Analytical procedures e.g. using external market or economic data to form expectations

Question 2

How can data analytics improve audit quality?

Answer 2

1. Practical way for auditors to deal with big data
2. Enables 100% checking to take place, eliminating sampling risk
3. Enhances the quality of audit information e.g. by the use of graphics to produce visual representations of the results of audit testing
4. Procedures can be carried out more quickly
5. Allows audit procedures to be carried out on a continuous basis rather than being concentrated at the year end

Question 3

Do the results of data analytics still need to be evaluated using the professional skills and judgement of the auditor in order to analyse the results and draw conclusions?

Answer 3

YES

Question 4

Data analytics: Potential problems

Answer 4

1. Cost of introducing data analytics may be prohibitive, especially for small firms
2. Staff training is required
3. Data security must be ensured
4. As with analytical procedures in general, the quality of data analytics depends on reliability of the underlying data used.

Question 5

Examples of data analytics routines

Answer 5

Comparing the last time an item was bought with the last time it was sold, for cost/NRV purposes

Inventory ageing and how many days inventory is in stock by item

Receivables and payables ageing and the reduction in overdue debt over time by customer

Analyses of revenue trends split by product or region

Analyses of gross margins and revenues, highlighting items with negative margins

Matches of orders to cash and purchases to payments

‘Can do, did do testing’ of user codes to test whether segregation of duties is appropriate, and whether any inappropriate combinations of users have been involved in processing transactions

Detailed recalculations of depreciation on non-current assets by item

Analysis of capital expenditure vs repairs and maintenance

Three-way matches between purchase/sales orders, goods received/despatched notes and invoices.

Question 6

Most common data analytics procedures

Answer 6

Risk analysis

Transaction/controls testing

Analytical procedures

Support judgements made

Confirm business insights

Question 7

Use of Ai in data analytics

Answer 7

Starting point for investigation