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Auditing in the Era of Big Data

By Tammy Whithouse of audit technology firm ACL. Theyre mation to consider, he says. It will free
focused on the quality of the audit, reduc- up professionals to spend their time on the

G
et ready for the era of Big Audit. ing the risk, and improving the efficiency highest value areas, Ucuzoglu says. That
The auditing profession is and effectiveness. aspect is actually exciting to auditors, he
starting to look at how to lever- Auditors have long used analyti- says, who are looking for ways to engage
age Big Data in audits with some big in- cal procedures in their audit work, says and retain more young talent in the pro-
vestments into cutting-edge data analyt- Dorsey Baskin, managing partner at fession.
ics that could dramatically deepen the Grant Thornton and a member of the as- Audit firms are tooling up for the
reach of external auditors into corporate surance services executive committee of transformation in a variety of ways, not
books and records. the American Institute of Certified Public the least of which is buying consulting
The push into the next generation of Accountants. Existing auditing standards businesses where the technology and the
auditing, however, is mired in regulatory require the use of analytical procedures to analytical skills reside. The Public Com-
and legal complexity that promises to bog plan the audit and to wind up an engage- pany Accounting Oversight Board, how-
down the transformation. ment, or to perform the smell test at ever, has expressed some concern over the
Under the future vision of auditing, the end of the audit, he says. The kind of firms return to the consulting business
public companies would give auditors
access not just to a sample of their trans-
actions, but to their entire general ledger With these tools, auditors will have the capability to look at the
and their databases. With these tools,
auditors will have the capability to look at underlying data, not just the summary data.
the underlying data, not just the summary
data, says Brian Fox, president of audit Brian Fox, President, Confirmation.com
services firm Confirmation.com. They
will want all the transactional data, even if
its millions or tens of millions of records. data analytics firms are now investigating with an eye on whether it compromises
It will be a different conversation. are far more complex, he says. The audit the auditors ability to perform an inde-
But dont expect the transition to hap- tool kit looks the same as it did 50 or 60 pendent audit.
pen overnight. External auditors have years ago, he says. If we were doctors,
been slower than others to jump on the that would be pretty frightening. This has Regulatory Skepticism
Big Data bandwagon, says Kelly Todd,
shareholder with audit firm Forensic
Strategic Solutions, which uses data ana-
tremendous potential, but its still early.
Were still experimenting.
Deloitte & Touche, for example, says it
P CAOB member Lewis Ferguson re-
cently said regulators are concerned
about the economic model for audit
lytics to conduct investigations. Its a is looking at the potential to leverage tools firmsfees for audit are flat while the real
massive leap to go from traditional audit in three different ways. The first, says Jo- growth lies in consulting servicesand
approaches, which are based on sampling seph Ucuzoglu, national managing part- whether that could jeopardize audit qual-
transactions, to an audit that would look ner for Deloitte, is to audit large or com- ity. Part of whats driving the acquisi-
at literally everything. The reality is plete sets of data, rather than just samples tion binge is to acquire the businesses that
with data analytics, you have the ability of data. The second is to leverage artificial have those analytical skills, he says. To
to look at 100 percent of the transactions, intelligence to search not just data but also that extent, I understand why the firms
she says. You can see the footprint of the text, looking for red flags and tell-tale are driven to make these acquisitions,
beast, the unusual patterns, and the things terms. The third area is to look beyond but thats not the only kind of acquisi-
that dont make sense. the data a company produces to examine tions theyre making. The firms make a
As analytic technology becomes more data available elsewhere. valid argument that they need to invest in
readily available and as audit firms take The firm is developing a series of tri- technology and analytics for the sake of
a beating from regulators and the capital als and testing them on a small scale to as- the audit, he concedes. This could fun-
markets over audit quality issues, exter- sure the techniques work, Ucuzoglu says. damentally change the way we do audits,
nal auditors are turning to Big Data for We are still doing traditional audit tech- he says. If anything it is likely to make
answers. Virtually all of the Big 4 and niques, but once we prove the concept, we the audit better.
others have very sizable projects around can take it to a larger stage, he says. The Another concern for regulators, says
transforming the effectiveness of external technology wont replace human auditors, Ferguson, is whether auditing standards
audit procedures through the use of tech- but will remove the rote tasks, examine need some revision to facilitate the use
nology, says John Verver, vice president more data, and give auditors better infor- of more advanced technology that would

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Reprinted from Compliance Week, April 2014


make traditional sampling techniques un- for not doing something, he says. Au- gated, he says.
necessary or even obsolete. We have to ditors will have to wrestle, for example, Still, folks like Ucuzoglu are excited
assure our standards are not forcing audi- with what to do about small or immate- about the potential. Audit firms havent
tors to do things that are simply no longer rial mistakes that are bound to turn up substantively changed the way the pro-
relevant, he says. with more detailed analytics, says Baskin. fession goes about doing an audit in a
Thats a concern for auditors as well, The software might overwhelm you long time, he says. This is frankly over-
says Baskin. The standards are based with anomalies that have to be investi- due.
on what we could do 50 years ago, he
says, which is sampling, not examining
AUDIT DATA STANDARD WORKING GROUP
all transactions. So even if auditors could
look at all transactions, the standards
would still require sampling, he says, Below the AICPAs Audit Data Standard Working Group provides information on its voluntary, uniform
leading to unnecessary redundancy and audit data standards.
inefficiency. The PCAOB has also insist-
ed through its inspection process that au- ASECs Emerging Assurance Technologies Task Force established the Audit Data Standard working
ditors test the completeness and accuracy group to help develop new technologies that will contribute to the effectiveness, timeliness, and
of any database auditors rely on for audit efficiency of the audit process. One of the main projects that this task force has been working on
evidence, an impossibility if auditors were is developing a standardized data model that management, internal auditors and external auditors
to use externally available market data in could utilize for enhanced analytics that would further improve the timeliness and effectiveness of
their analysis, he says. the audit process.
There are additional hurdles, Baskin
says. One of the things holding us back One of the challenges that management and auditors face is obtaining accurate data in a usable
is every audit engagement team would format following a repeatable process. As a result, the working group has developed a voluntary,
have to design its own program, get cli- uniform audit data standards that identifies the key information needed for audits and provides a
ent files, figure out how they are orga- common framework covering: (1) data file definitions and technical specifications, (2) data field defi-
nized and whats in them, and program nitions and technical specifications, and (3) supplemental questions and data validation routines to
the analytics, he says. If we have a data help auditors better understand the data and assess its completeness and integrity The standards are
standard so we can get access to the data offered in either of the following two file formats: (1) flat file format (pipe-delimited UTF-8 text file for-
in a standard format, it becomes much mat) and (2) eXtensible Business Reporting Language Global Ledger Taxonomy Framework (XBRL GL).
more efficient and attractive for auditors.
AICPAs ASEC is exploring how to pro- The first issuance of the Audit Data Standards includes the following standards.
duce standards for companies to follow to
produce data in a format that lends itself Base Standard: The base standard document includes information on formats for files and fields
to data analytics, he says, and has so far that should be used in conjunction with each audit data standard document.
produced standards for the general ledger
and accounts receivable. General Ledger Standard: This standard includes information specific to General Ledger ac-
Some auditors may also resist over fear counts.
of a new litigation risk, says Peter Bible,
a partner with audit firm EisnerAmper. Accounts Receivable Sub-ledger Standard: This standard includes information specific to the
In hindsight, if something goes wrong Accounts Receivable sub-ledger.
for whatever reason, you can always be
challenged or criticized or found at fault Source: AICPA.


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Reprinted from Compliance Week, April 2014