AUDIT ANALYTICS AUDIT

AUDIT ANALYTICS AND CONTINUOUS AUDIT:LOOKING TOWARD THE FUTURE
If there are only two ratios, say current ratio and ROA, a scatter plot
shows how the point pairs (Current Ratio, ROA) are dispersed. Figure 5-8
illustrates this using the Compustat-derived data for these two ratios
summarized in figure 5-7. For comparability, scales have been changed so
that 0 is the lowest for each ratio and 1 is the highest, with the relative
measurement retained. Outliers are those points that lie a significant
distance from the median. In figure 5-8, X marks the median point and
the farthest outlier is circled. To use this chart in practice the auditor
would compute the entity’s current ratio and ROA and compare the pair
to the points in figure 5-8, and would typically be concerned if the point
is in the "weak" lower left. figure 5-9 shows the distribution of the
distances of the points depicted in figure 5-8 from the median point
marked with an X.
If there were three ratios, the scatter of points (Ratio 1 , Ratio 2 , Ratio 3 )
would occupy a three-dimensional "box" chart rather than the flat sheet
occupied by figure 5-8. For more than three dimensions we lose the
ability to depict the points graphically though they can be handled just as
easily mathematically. The equivalent of figure 5-9 works regardless of
the number of dimensions.
Figure 5-8: Dispersion of the Ratio Pair (Current Ratio, ROA)
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