Driven by a desire to increase the quality, efficiency and effectiveness of auditing, data and analytics are making inroads into the toolkits of internal and external auditors.
Reviewing the results of a Financial Executives Research Foundation study, Data Analytics and Financial Compliance: How Technology is Changing Audit and Business Systems, Michael P. Cangemi, President of Cangemi Company, told FEI’s Committee on Finance & IT (CFIT) analytics are starting to play a larger role in audit processes.
“We’re in a very interesting transition stage,” Cangemi said. “Public accounting firms have challenges with PCAOB reviews and their audit standards, and some staffing challenges, but the direction they want to take with this technology is pretty clear. They want to use more analytics in the future.”
One of the factors increasing interest in applying analytics to the audit process is a desire among companies to mitigate annual increases in audit fees and, in a broader sense, compliance costs. According to FERF’s 2015 FERF Audit Fee report, public company audit fees among responding companies increased by a median 3.1 percent during 2014 fiscal year audits.
For internal auditors, analytics can be applied to help the function provide more value to the organization’s business units. For instance, Cangemi said, some companies are using analytics to help in areas including procure-to-pay, travel and entertainment, Foreign Corrupt Practices Act compliance, and other functions.
“Internal auditors can come to meaningful conclusions with a lot less work by using technology,” Cangemi said. “Some of the advanced internal audit groups we’ve spoke to are subordinating independence questions to support business process improvement as well as control improvement. More internal audit functions are adding value by partnering with the business.”
Cangemi cited the example from the FERF research of a carpet manufacturer whose internal audit team applied analytics and allowed business unit leaders to access the same tools to improve collaboration and insights.
As with internal auditors, external audit firms are also starting to use analytics as part of their efforts to enhance quality while understanding their clients’ businesses and risks more deeply.
“Audit quality came up in every interview,” Cangemi...