Auditors today are working in an exceptionally complex and ever-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 fraud for their clients.
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 assess risk areas based on consultation with the organisation. Depending on responses, an audit will either be performed annually or every two to three years for internal controls 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 Methods For Building An Audit Plan
To help improve the effectiveness of audits and clearly demonstrate their value, auditors can deliver more value for their clients by firstly optimising audit planning. Secondly, empowering teams with systems and tools that focus subject matter expertise on the audit, as opposed to spending unnecessary time in extracting information from systems and preparing data within spreadsheets.
Thirdly, it is important to pinpoint findings that will save the company money and improve business operations. A more systematic approach to audit planning offers a variety of advantages, including:
• Breaking risks down into individual factors and then being able to align them across the audit landscape
• Individually scoring risks for each financial statement area.
• Calculating an overall score but also ensuring that specific levels of risk are clearly reflected on financial statements.
• 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 to simplify and improve audits, eliminate manual tasks, reduce costs, detect potential fraud, errors, and abuse – and most importantly these valuable insights are attained 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, optimise audit expertise resources, save time, and identify significant information about the business.
Audit Planning – Get It Right With Data Analysis
Running data analytics tests during the audit planning phase, helps to provide a better understanding of what is happening and highlights the areas of greatest risk. Moreover, it shows 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 process helps shift or refine the focus of the audit early on. Also, if used in the planning process it can provide auditors with a comprehensive understanding of the scope of the business and can help to identify specific questions that need to be put to the company to adjust the focus of the audit – as and where required. Moreover, data
analytics helps to automate a significant number of manual tasks and save considerable time and costs. What can often take days to complete can be executed within minutes when the audit commences.
What Is The Best Approach To Build An Audit Plan?
Firstly, complete a risk assessment – but where to start? Trying to analyse each area can be time-consuming and overwhelming. Instead, the best option is to start with a few key areas at a time and the ones that reveal the most problems are the ones that should be audited first. Testing can then be expanded from there.
The Five Key Areas To Test
Data analytics applied to the following five key areas will reveal potential risk – an audit plan can be built based on the information revealed from scrutinising the following:
1. Accounts Payable
2. Accounts Receivable
3. General Ledger
5. Stock and Inventory
Why Use Caseware IDEA®
The Value Proposition Caseware IDEA® Brings To Audit Capabilities
Increases audit scope by allowing users to import all their records, including spreadsheets, and exported data from databases, accounting programs such as Pastel, for example, other ERP systems plus travel and entertainment applications in formats such as PDFs, plain text (.txt), print-report (.prn), open database connectivity (ODBC) and SAP.
Automates the sampling processes by eliminating the need to export data into spreadsheets and preparing manual sample sets.
Analyses 100 percent of the data across a multitude of datasets.
Streamlines testing procedures with built-in workflows.
Protects the integrity of the data by locking source data files so that they are read-only.
Creates an auditable trail so analysis can be documented, shared, and repeated.
Creates repeatable tests to reduce time spent on routine tests. Caseware IDEA® also offers more than 100 audit-relevant tasks and a variety of advanced features to help auditors better plan and execute their audits.
The following is a sample of these features:
Universal file conversion capabilities 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 visualization with the ability to either auto-populate or custom-build dashboards with charts and field statistics into which auditors can drill down.
Audit automation through languages like Python or IDEAScript.
Christiaan Steyn, Assurance Product Manager, Caseware Africa, a division of Adapt IT. Christiaan is an Associate General Accountant (SA), with extensive technical knowledge and a passion for technology. He completed his articles at a medium-sized auditing firm where he gained experience in various industries. He was later appointed Template Developer and then moved to the role of Product Manager at CQS Holdings – which was subsequently acquired by Adapt IT and renamed to Caseware Africa.