Data Analytics and the Evolving Audit

An auditor has the responsibility to plan and perform audit services so as to obtain reasonable assurance that a financial statement is free of material misstatement, whether caused by error or fraud. This definition has been the bedrock of the profession from the beginning. But while the mission has not changed, the methods used by auditors to perform this critical function have evolved. We are now entering what may be the most exciting and transformative period in the audit industry since the introduction of the personal computer and the spreadsheet. With the rapid progress of artificial intelligence, machine learning, robotic process automation and advanced tools for data analytics, the future of auditing is ripe for disruption.

Within this disruptive environment Marcum recognizes tremendous opportunity. It is no longer necessary to rely on a data sample to extrapolate meaning for entire populations, or to keep highly trained and talented auditors focused on tasks that do not make full use of their intellectual capability. The audit has entered the age of analytics and big data.

Analytics provide the following three major benefits over traditional methods:

• the ability to test complete populations in a fraction of the time of normal sampling methods
• rapid identification of anomalies and trends, enabling a more risk-based approach
• deeper insight into client performance and any existing complacency or other issues

In an effort to provide our clients with the most effective and efficient audit services possible, Marcum began deploying a range of analytical tools in our audit practice and training all of our audit associates on the underlying opportunity to unlock the power of our clients’ data using these tools. The benefits were immediately clear. However, we also found that certain aspects of using the analytical tools successfully require skills that can be developed only through frequent repetition and an individual user’s ability to articulate clearly and exactly what they need and what their goal is. This lack of expression and the inability to envision how to utilize the tools’ advanced functions reduces the effectiveness of data analytics in an audit and limits the user’s ability to apply these tools to achieve true transformation in performing the audit.

Despite this challenge, Marcum remains extremely excited about the role of data analytics in the audit of the future and is committed to accelerating the transformation. To accomplish this, we have established a dedicated data service center (DSC) in our firm’s Nashville, Tennessee, office. The DSC is a group of professionals with a solid understanding of the audit process and a deep working knowledge of the tools and techniques used in data analytics. The DSC is a resource available to all Marcum auditors. In this way, we are able to provide all audit engagement teams, regardless of individual members’ data analytics proficiency, with immediate access to the technical expertise needed to take full advantage of these tools, while also ensuring consistency and efficiency firm-wide.

The reception by audit engagement teams across Marcum’s U.S. offices has been universally positive. Not only are higher quality results delivered to clients more efficiently, but individual auditors are developing stronger data analytics skills and creating new approaches to enhance the value they personally provide to clients significantly. This is accomplished not only via ongoing interaction with Data Service Center professionals, but also through tutorials accompanying each set of results, illustrating the steps to reproduce the results and methods to apply the same concepts and techniques to future engagements. As the auditors observe the capabilities of analytics and how they can be applied, they are inspired to innovate and explore further other areas in which to truly transform the audit.

As auditors’ capabilities in using data analytic tools continue to expand, Marcum has found that demand for the Data Service Center is growing in tandem. Auditors are discovering new and innovative ways to apply their years of education and professional experience to high risk areas to uncover and address anomalies and exceptions.

As Marcum has made the investment and proven out this new process, we have begun to open up our Data Service Center to members within the ECOVIS network. We are confident that this access will allow other firms to jumpstart their journeys into audit analytics and begin building the expertise to deliver a higher level of effectiveness and efficiency in their audit engagements.

Authors:

Peter Scavuzzo, Chief Information & Digital Officer, Marcum LLP, New York City, USA
Jule Consiglio, manager, business analyst, information technology, Marcum LLP, New York City, USA