Data analytics for external auditors
Auditor data analytics is about enhancing audit quality. There are different angles on what this means in practice but audit quality is a common objective of auditors, regulators and standard-setters alike.
A high-quality, focussed and effective audit is aligned with the way the audited entity manages its data and operations. Data analytics is currently the preserve of larger firms and the mid-tier but that looks set to change. Smaller firms need to be aware of the potential for data analytics to transform smaller audits in due course.
What is data analytics?
Data analytics consists of tools that extract, validate and analyse large volumes of data, quickly. The tools are applied to complete populations, 100% of the transactions, i.e. ‘full data sets’, and they can be used to support judgements, draw conclusions or provide direction for further investigation.
Data visualisation, such as bar and pie charts, and cluster diagrams, is used to analyse data, bring it to life and help users understand the significance of the findings. Improvements in interfaces mean that data analytics can be used by non-specialists.
What is so important about this publication?
ICAEW is unique in its ability to draw on the views of a wide range of experts on pressing professional matters. Our knowledge of standard-setting, regulation and audit practice enable us to articulate the issues associated with data analytics with an unusual degree of clarity. This publication is the output of interviews with 12 ICAEW members with a strong working interest in data analytics.
This publication is about possibilities. Its purpose is:
- to ask fundamental questions about the opportunities data analytics provides for the profession, regulators, standard-setters, investors and academics to rethink and reinvent audit, for the benefit of society as a whole;
- to raise levels of awareness of data analytics issues;
- to inform and educate business, auditors, investors and others about recent developments in the use of data analytics in external audit; and
- To inform auditors of small and medium-sized entities (SMEs) that they need to be aware of the potential for data analytics to transform smaller audits in due course.
Data analytics is making radical changes to larger external audits, but it’s only a matter of time before these powerful and important new tools become available to small and medium-sized audit firms for SME audits.
If we put aside, for a moment, the existing concepts of risks, controls and different types of testing, we can think about what auditing standards might look like now if data analytics had been around thirty 30 years ago. About how we keep the value of the insights data analytics provides to business within the external audit.
About this publication and International Standards (formerly IAAE)
This publication forms part of a series of publications on International Auditing Perspectives and is part of the online resources of International Standards (formerly International Auditing, Accounting, Auditing & Ethics (IAAE)).
If you would like to find out more about the issues raised in this publication, please contact Katharine Bagshaw (Manager, Auditing Standards).
Visit our International Standards web portal to find out more about how it can support the implementation of International Standards.