Auditor data analytics is about enhancing audit quality. While in practice, this can mean different things, audit quality is a common objective of auditors, regulators, and standard-setters alike. A high-quality, focused, and effective audit is aligned with the way the audited entity manages its data and operations.
The Institute of Chartered Accountants in England and Wales (ICAEW) recently published a report on the role of data analytics in external audit. The report is based on interviews with 12 ICAEW members with a strong working interest in data analytics. The single most important and consistent message that came out of the interviews is that everyone with an interest in audit has an opportunity to rethink what we want from audit, and how data analytics might be able to transform it. The potential implications for the way we go about an audit are radical: the ability to test 100% of a population—the entire data set—quickly and accurately, calls into question many audit fundamentals, such as the distinction between risk analysis, tests of controls, and substantive procedures.
The objectives of the report were:
- 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 in external audit;
- To inform and educate business, auditors, investors, and others about recent developments and challenges in the use of data analytics in external audit; and
- To inform auditors in small and medium practices (SMPs) and auditors of small and medium-sized entities (SMEs) that they need to be aware of the potential for data analytics to transform such 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 SMPs for SME audits.
The report forms part of the International Auditing Perspectives series, and can be found online among other resources on the ICAEW’s International Accounting, Auditing & Ethics web page. To find out more about the issues raised in this publication, contact Katharine Bagshaw (Manager, Auditing Standards) at kbagshaw@icaew.com.
Note that the International Auditing and Assurance Standards Board (IAASB) began gathering information on data analytics in April 2015. It established a Data Analytics Working Group to explore emerging developments in audit data analytics and how the IAASB can most effectively respond, such as by developing international standards or non-authoritative guidance (including staff publications), and in what timeframe.
