How to prepare for auditing in a digital world of Big Data
Rapid changes in technology are a reality of the current business
environment. In addition to affecting how business is done, these
changes present new challenges to auditors.
The internet, cloud computing, and the pervasive use of mobile
devices enable auditors to practice in a globally connected
environment. Technology can be used to transform auditing and improve
audit effectiveness, according to the white
paper Reimagining Auditing in a Wired World, published by
the Emerging Assurance Technologies Task Force of the AICPA Assurance
Services Executive Committee (ASEC).
According to the white paper:
Significant changes in audit approach are needed to take
advantage of the new environment, according to one of the authors of
the white paper, Miklos Vasarhelyi, Ph.D., director of the Rutgers
University Accounting Research Center & Continuous Auditing &
“The profession is still not doing very much with Big Data, yet,” he
said. “But the sources of evidence have changed so dramatically that
there can be no way that the profession will not use it. The more
difficult prediction is when this change will happen. … It will not
occur overnight but will be more ad hoc and evolutionary, and changes
in audit practice will continue to occur as corporate processes
Through its Enhancing Audit Quality (EAQ) initiative, the AICPA is
attempting to move the profession toward the use of new audit
technologies and methodologies that will allow auditors to provide
more continuous assurance and will result in more timely and relevant
audit reporting. For additional information about this initiative, see
EAQ initiative webpage.
Advances in data science can be applied to perform more effective
audits and provide new forms of audit evidence. Audit data analytics
(ADA) methods can be used in audit planning and procedures to identify
and assess risk by analyzing data to identify patterns, correlations,
and fluctuations from models. These methods can give auditors new
insights about the entity and its risk environment and improve the
quality of analytical procedures in all phases of the audit.
Technology permits the creation of Big Data that can be analyzed to
improve auditors’ knowledge about the transactions and balances
underlying the financial statements. This can help them obtain better
evidence for their audit opinions and understand fundamental causes of
restatements, fraud, and going-concern issues.
Thanks to technology, audit procedures such as bank confirmations,
analytical procedures, and journal entry testing do not have to be
performed on-site by local audit teams. Instead, these tasks can be
outsourced to remote teams of specialists and third-party providers,
creating opportunities for auditors to focus on higher-risk areas and
the potential for fraud.
The white paper recommends that while technology can be used to
achieve the same level of assurance more efficiently at a lower cost,
a greater benefit would be to achieve a higher level of assurance at a
similar cost—resulting in better audit quality for clients and
investors and reduced audit risk and liability. For example,
computerized data and file interrogation software can be used to
perform transaction testing on 100% of a population.
Technology permits continuous, or more frequent, monitoring of
transactions by external auditors. Auditors can benefit from being
able to spread audit work throughout the year rather than only during
“busy season,” identifying potential issues earlier, and having the
ability to modify audit plans in response. Companies can benefit from
improved audit quality and client service. Continuous reporting and
web-based availability of financial information is replacing periodic
issuance of financial statements, which may lead to the requirement
for continuous audit assurance, the white paper found.
To prepare auditors for these changes, Vasarhelyi said:
Maria L. Murphy (
) is a freelance writer. She has worked in public accounting as an
audit and technical review partner and as a national office
director, in private industry in accounting and financial reporting
roles, and most recently as the editor-in-chief of The CPA Journal.
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