AUDIT ANALYTICS AUDIT

ESSAY 5: DATA ANALYTICS FOR FINANCIAL STATEMENT AUDITS
that can and is transforming industries. The time is ripe for
transformative thinking in the profession.
DA can contribute to every phase of the audit
to pre-engagement activities such as deciding whether to accept or
continue an engagement;
to audit planning;
to understanding the entity and its environment and assessing the
risks of material misstatement;
to evaluating the design and implementation, and testing the
operating effectiveness of internal controls;
to substantive testing, both analytical procedures and tests of
details; and
to concluding and reporting.
DA is relevant to and has the potential to significantly improve audit
procedures throughout the audit. Examples include procedures for the
following:
Identifying and assessing fraud risk
Performing external confirmation procedures, especially the
identification of high risk items for confirmation
Auditing accounting estimates
Obtaining an understanding of related party relationships and
transactions
Obtaining evidence about the valuation of investments, the
existence and condition of inventory, as well as the completeness
of litigation, claims, and assessments
Identifying material subsequent events
Evaluating whether there is substantial doubt about the entity’s
ability to continue as a going concern
DA techniques provide leverage by analyzing data and presenting results
so that the auditor can more easily make judgments. DA handles the
mechanics while real cognition happens in the mind of the auditor. That’s
as things stand today. But DA is not static and, as described later, recent
developments have led to a new breed of computers that are capable of
higher-order cognitive processes that until now have been the exclusive
preserve of humans. Cognitive computers are destined for an important
role in the accounting and auditing profession.
The auditor’s overall objective of obtaining reasonable assurance can also
be expressed as reducing audit risk, the complement of assurance, to an
acceptable level. Auditing standards explain that audit risk is a function
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