Importance of analytics in auditing
What is Analytics?
Analytics is generally defined as the process of analysing, gathering, and examining data sets in order for auditors to draw conclusions from that information and use it to make decisions. In other words, analytics refers to the process by which auditors audit a company’s financial data and draw conclusions from it.
Types of Analytics in auditing
Data analytics is a huge field and is still growing. There are four different types of analytics that can be used by a business. These are as follows:
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Descriptive analytics
They are analytics that describes the past. Since the question ‘‘What happened?’’ is answered by descriptive analytics, it does give valuable information regarding the past, which is pulled out from the examined data coming from multiple data sources. This helps in finding out if something is wrong.
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Diagnostic analytics
This analytic is used to find out the reason on the question ‘‘Why did something happen? By analysing the past data or performance. In this analytic, many techniques like drill-down, data discovery, data mining, and correlations. This analytic provide deep insight to problems that arise, and for that reason, some companies use this one.
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Predictive analytics
Predictive analytics tells ‘‘What is likely to happen?’’. Predictive analytics utilise various data analysis models and other software and technologies to forecast the future of the business and also to figure out the future trends in the industry. This analytic may not be exactly right but it will provide a path to the business for the future.
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Prescriptive analytics
This analytic is about deciding what action to take in order to prevent a problem to happen in the future or grasp the opportunity of a promising trend. This helps the person or businessman to determine which course of action is best to take in order to have better decisions.
Benefits of Analytics in auditing
The various benefits due to which analytics is so important in the audit are:
- By using the process of analytics, we can get the accurate and correct information of the business. All the technological processes of the company will generate data that is recorded for analysis later. This data is to the point and is accurate.
- Analytics helps in a better understanding of data by representing or transforming data into multiple forms which can be changed as per the person seeing it. For example, different forms for stakeholder, different for investors etc.
- The data collected through analytics is unadulterated and pure, which provides a sense of transparency to the investors. This data helps the investor in enhancing their confidence and making a better decision.
- It is very difficult to analyse huge amount of data manually. Thus, we need systems and processes which take comparatively lesser time to process. It is very important to process the entire data to get a better picture of the current conditions as well as the future.
- It is very difficult to develop strong insights when data is spread across multiple files, systems, and solutions. The use of technologies and software makes it easy to integrate data from multiple sources. This feature of the software will provide the management with the ease of the data being present at a single place. This will allow for the analysis of the data without any hindrance or stop.
Major challenges with analytics
The following are the challenges that may arise with the introduction of analytics:
- There are different computer programs are available for an audit with analytics, so it might probable that audit report generated in one software on the auditor’s computer will not work on the software in the client’s computer.
- Due to the data stored in a software, there may be a chance of risk in data privacy.
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