Today’s auditors are working in an exceptionally complex and always-evolving industry. In an environment where there is pressure to add more value with fewer people and less time, auditors are challenged to discover more risks, audit more areas, more frequently, and uncover any fraud in their organisation.
“Yesterday - ineffective audit planning methods”
Many audits today are conducted at planned intervals rather than based on thoughtful consideration of evidence that points to patterns or areas of risk. Instead, auditors select a given area and ask the organisation if it is a risk area. Depending on the response, an audit will either be performed annually or every two to three years if it’s deemed to be less risky. Unfortunately, this method can facilitate overlooking risk areas and permit fraud or other issues to go undetected.
“Today - effective audit planning methods”
To help improve the effectiveness of audits and clearly demonstrate their value auditors must first plan their audits better – and they can do this by pinpointing findings that will save the company money.
A more systematic approach to audit planning offers a variety of advantages, including:
- Breaking risks down into individual risk factors and then being able to align them across the audit landscape
- Individually scoring risks for each auditable process
- Calculating an overall score that indicates each audit unit’s risk level
- Evaluating relative risk levels in order to establish the audit scope
“The Data Analytics Approach to Audit Planning”
It’s well known amongst auditors that data analytics helps simplify and improve audits, reduce costs, detect potential fraud, errors, and abuse – and above all do so earlier in the process. However, many auditors are missing the opportunity to leverage data analysis software to help prepare a rounded and well-thought-out audit plan. Using data analytics during the audit planning phase helps to focus audits, allocate resources effectively, save time and detect relevant information about the business.
“Audit planning – get it right with data analysis!”
Running data analytic tests during the audit planning phase helps provide a better understanding of what is happening, the areas of greatest risk; where control breakdowns are occurring, and the state of risk management in the company. Utilising insights provided by data analysis in this phase of the audit helps shift or refine the focus of the audit early on. Also, if used in the planning process it can also provide auditors with a comprehensive understanding of the scope of the business, and helps identify specific questions to put to the company to adjust the focus of the audit – as and where required.
“So - how do you build an Audit Plan?”
You must first complete a risk assessment - but where do you start? Trying to analyse each and every area can be time-consuming and overwhelming. The best option is to start instead with a few key areas at a time and the ones that reveal the most problems are the ones that should be audited first. You can then expand your testing.
“THE 5 Key areas to test!”
Data analytics applied to the following five key areas will reveal potential risk – you can build your audit plan based on the information revealed from the scrutinising, such as the following:
- Accounts Payable
- Accounts Receivable
- General Ledger
- Stock and Inventory
You need IDEA!
Advanced data analysis tools help auditors to plan their audits strategically and lead to better, more effective audits. IDEA is a trusted data analysis solution that is used in Fortune 500 companies, governments, small businesses and 80 out of the top 100 accounting firms in the United States. It is used by more than 250,000 users in 90 countries and is available in 16 languages.
“The value proposition IDEA brings to your audit capabilities”
Increase audit scope by allowing users to import all their records, including spreadsheets and exported data from databases, accounting programs, ERP systems plus travel and entertainment applications in formats such as PDFs, plain text (.txt), print-report (.prn), open database connectivity (ODBC) and SAP
- Analyse 100 percent of the data rather than relying on sampling
- Protect the integrity of the data by locking source data files so that they are read-only
- Create an auditable trail so analysis can be documented, shared and repeated
- Create repeatable tests to reduce time spent on routine tests
IDEA also offers more than 100 audit-relevant tasks and a variety of advanced features to help auditors better plan and execute their audits. A sampling of these features includes:
- Universal file conversion capabilities that make it fast and easy to import all records
- Advanced audit functions with just a click, including Gap Detection, Benford’s Law, advanced Fuzzy Duplicate, Summarisation, Stratification, Sampling and more
- Data visualisation with the ability either to auto-populate or to custom build dashboards with charts and field statistics that can be drilled down into
- Audit automation through languages like Python or IDEAScript