Efficient Data Analytics Benefits for Audits

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Benefits of Data Analytics to Make Audits More Efficient
 
Wayne Ference, CPA
Partner, Castro & Company
IPA Session for the CIGIE/GAO Financial Statement Audit Conference
May 26, 2022
 
The 
AICPA Center for Audit Quality
 has recognized data analytics as a core capability for CPA’s and recommends
using 
Computer Assisted Audit Techniques
 (
CAATs
) to test client data and carry out audit procedures.  Here is just a
few of the test scripts recommended by the AICPA:
Find journal entries that do not balance
Find gaps in transaction entry number sequence
Find high-dollar transactions or journal entries
 
Applying some of these tests to 
Federal agencies 
allows the auditor to:
 
Identify financial transactions processed outside of normal USSGL 
posting patterns
Identify disbursements in total above the 
funds control limit 
established for the agency
Compare closed or voided contracts, loans, or grants to 
open obligations for de-obligating
Compare contract or grant award amounts to 
accounts payable 
and 
amounts disbursed 
in the
financial or accounting system.
 
2
 
3
 Training is
  required
 2 GB database
 255 fields
  (columns)
 Standard, easy to
   use office
   application
 Data analysis
   toolkit
 Built-in functions
 Built in functions
 Great for joining
   tables
 1,048,576 rows by
  16,384 columns
 255 chars per field
Microsoft Excel
Analytic
Capabilities
Ease of use
Capacity
Tools
Microsoft Access
 Requires basic
  training
 Menu based
 Complete set of
   preprogrammed
   analysis
Unlimited
Generalized Audit
Software (GAS)
 To be done
  manually by user
 To be done
  manually by user
Documentation
Log file
documents every
step continuously
 
Tool choice should depend on user expertise, data to analyze and analysis to be performed.
 
4
 
So, you can see that using IDEA versus Excel cuts the time to complete complex audit tests in half.
 
What this comparison leaves out is the time required to actually 
design
 and enter the 
query/test parameters
.
 
In the case of Excel, this can be hours.\, and require some level of programming skill. In IDEA, these queries/test
scripts are 
pre-programmed
 and just menu-driven commands that can be run instantly.  Some other key
comparisons:
 
5
 
IDEA stands for ‘
Interactive Data Extraction and Analysis
’ and is what we call a ‘file
interrogation tool’.
 
Even though when you launch this application it looks a bit like Excel, it is not a
spreadsheet.  IDEA is a relational database that allows the auditor to plug into the core
financial system and run queries on large datasets.
 
IDEA 
brings with it over 100 built-in audit analytics test scripts that can be rapidly run on
any data set.
 
What does the Data Analysis Model look like in IDEA for audits?
What are some potential uses for Federal agencies?
 
6
 
7
 
Target Test Script:
Identify financial transactions processed outside
of normal USSGL posting patterns.
For example, identify disbursements that posted to
financial records without a corresponding
obligation.
 
Target Test Script:
Identify disbursements in total above the funds
control limit established for the agency.
For example, most smaller agencies have an
established funds control limit that corresponds to
their annual appropriation amount. Summarize
disbursements and compare to the appropriation
amount for a fiscal year at Q4.
 
8
 
Target Test Script:
Compare closed or voided contracts, loans, or grants to
open obligations for de-obligating.
Comparison could potentially include consolidation of
multiple contracting, accounts payable, disbursing, and
accounting systems used by the organization.
 
Target Test Script:
Compare contract or grant award amounts to accounts
payable and amounts disbursed in the financial or
accounting system.
Comparison could potentially include data extracted
from the grant payment system, collecting drawdown
data along with the authorized awards.
 
9
 
10
 
Tests for abnormal
duplication of digits
Suspicious transactions
flagged, and can be
extracted for further testing
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Data analytics plays a crucial role in enhancing audit efficiency, as recognized by the AICPA. Using tools like Generalized Audit Software (GAS) and applications such as IDEA and Excel can significantly reduce the time and complexity of conducting audit tests. IDEA pre-programmed queries offer a menu-driven approach for instant results compared to Excel, which may require hours of programming and manual checks for accuracy. The use of data analytics tools like IDEA enhances simplicity, reduces data entry risks, and ensures consistent, auditable outputs.


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  1. Benefits of Data Analytics to Make Audits More Efficient Wayne Ference, CPA Partner, Castro & Company IPA Session for the CIGIE/GAO Financial Statement Audit Conference May 26, 2022

  2. The AICPA Center for Audit Quality has recognized data analytics as a core capability for CPAs and recommends using Computer Assisted Audit Techniques (CAATs) to test client data and carry out audit procedures. Here is just a few of the test scripts recommended by the AICPA: Find journal entries that do not balance Find gaps in transaction entry number sequence Find high-dollar transactions or journal entries Applying some of these tests to Federal agencies allows the auditor to: Identify financial transactions processed outside of normal USSGL posting patterns Identify disbursements in total above the funds control limit established for the agency Compare closed or voided contracts, loans, or grants to open obligations for de-obligating Compare contract or grant award amounts to accounts payable and amounts disbursed in the financial or accounting system. 2

  3. Generalized Audit Software (GAS) Tools Microsoft Excel Microsoft Access 1,048,576 rows by 16,384 columns 255 chars per field 2 GB database 255 fields (columns) Capacity Unlimited Standard, easy to use office application Training is required Requires basic training Menu based Ease of use Data analysis toolkit Built-in functions Built in functions Great for joining tables Complete set of preprogrammed analysis Analytic Capabilities To be done manually by user To be done manually by user Log file documents every step continuously Documentation Excellent Good Satisfactory Poor Very poor Tool choice should depend on user expertise, data to analyze and analysis to be performed. 3

  4. Application Approximate Time to Perform GL Query/Test Microsoft Excel IDEA 61 minutes 29 minutes 4

  5. So, you can see that using IDEA versus Excel cuts the time to complete complex audit tests in half. What this comparison leaves out is the time required to actually design and enter the query/test parameters. In the case of Excel, this can be hours.\, and require some level of programming skill. In IDEA, these queries/test scripts are pre-programmed and just menu-driven commands that can be run instantly. Some other key comparisons: Excel Can use Filter function High Level of Complexity High Risk of Data Input Error Formulas Require Manual Checks to Ensure Accuracy IDEA Uses Direct Extraction Simplicity, Low Data Entry Risk Consistent Output (Standard Format) Data Integrity (Audit History Log) Reports Require Formatting Source Data Not Edited/Read-Only 5

  6. IDEA stands for Interactive Data Extraction and Analysis and is what we call a file interrogation tool . Even though when you launch this application it looks a bit like Excel, it is not a spreadsheet. IDEA is a relational database that allows the auditor to plug into the core financial system and run queries on large datasets. IDEA brings with it over 100 built-in audit analytics test scripts that can be rapidly run on any data set. What does the Data Analysis Model look like in IDEA for audits? What are some potential uses for Federal agencies? 6

  7. 7

  8. Target Test Script: Identify financial transactions processed outside of normal USSGL posting patterns. For example, identify disbursements that posted to financial records without a corresponding obligation. Target Test Script: Identify disbursements in total above the funds control limit established for the agency. For example, most smaller agencies have an established funds control limit that corresponds to their annual appropriation amount. Summarize disbursements and compare to the appropriation amount for a fiscal year at Q4. 8

  9. Target Test Script: Compare closed or voided contracts, loans, or grants to open obligations for de-obligating. Comparison could potentially include consolidation of multiple contracting, accounts payable, disbursing, and accounting systems used by the organization. Target Test Script: Compare contract or grant award amounts to accounts payable and amounts disbursed in the financial or accounting system. Comparison could potentially include data extracted from the grant payment system, collecting drawdown data along with the authorized awards. 9

  10. Tests for abnormal duplication of digits Suspicious transactions flagged, and can be extracted for further testing 10

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