With clients continuing to put downward fee pressures on auditors, firms need to look for additional ways to gain efficiency on their audits. One of the easier ways to do this is to look at data analytic tools that are designed to help automate the auditor’s work or audit analytics tools.

What are audit analytics tools?

Audit analytics tools are designed to help automate some of the procedures originally performed manually by an auditor. These tools can be used when an auditor can get the underlying data for a report and also potentially access to the transactions that the report needs to be tied to. For example, getting beginning and ending trial balances and all of the underlying journal entries in between, or an AR aging reporting and the underlying outstanding invoices.

The basic functionality that you’ll see in audit analytics tools is the ability to import the data, and then perform tests on the data. Additionally, audit analytics tools can help with sampling (e.g., random or monetary unit sampling) and other data-related tasks. Some tools also provide you with the ability to clean up or segment data as part of the import. An example of segmenting data is taking an account number and splitting it between natural classification and department—taking 6100-10 and splitting that into 6100 (Advertising expenses) and 10 (Department A) in two separate fields so that you can do further analysis.

Examples of audit analytics tools Some of the common audit analytics tools used by firms today, as well as some of their common features or differentiators are shown below (in alphabetical order).

ActiveData (Donny's link to save 15% off: Informationactive.com/intraprise)

• Excel Add-In, familiar feel and minimal learning curve
• Provides both data preparation functions and pre-programmed tests
• Low cost enables you to put this in the hands of every auditor

Inflo

• Web-based application, requires Internet connection
• Variety of pre-programmed tests available
• Test results can be exported to Excel or PDF formats
• Native integration with Thomson Reuters AdvanceFlow for workpapers
• Includes benchmarking capabilities

• Web-based application, requires Internet connection
• Enables auditors to focus on higher-risk transactions by automatically running many common audit tests and using the results of these to provide risk scoring
• Beneficial for fraud detection and audit planning

• Excel Add-In, familiar feel and minimal learning curve
• Pre-programmed tests or create your own custom tests
• Tests result in self-documenting Excel workpapers that document what was done

There are two additional audit analytics tools that are also available, ACL and IDEA. These are not included above, as they are more complex to use and require extensive training and some programming knowledge to use effectively. They also are generally more costly than the tools above, so they are usually provided to “specialists” within an audit department, rather than to every auditor. (The rest of the tools mentioned above would usually be provided to every auditor.)

How to evaluate audit analytics tools

I’ve found that there is no right or wrong tool for a given firm, and just because you’re using a particular vendor doesn’t mean that you should by default select their audit analytics tool. Before you begin to consider these tools, look at your audit engagements and determine which types of tests are performed most often. Then look at which tools perform those tests and whether those tests would be easy for your staff to learn.

Then you can consider which types of tests could begin doing if you were using a tool. For example, while many firms use sampling when looking at a dataset, could you instead switch to use risk scoring to have greater insights on the entire data population and focus your testing on higher risk transactions? Sometimes this means running more tests, which while technically less efficient, could also reduce your detection risk and thereby make your audit more effective.

Find out whether your staff have experience with any of the tools. This is a good approach if you have experienced hires. If several of your staff already know how to use a particular tool, it may make sense for you to more heavily consider using that tool. Having “power users” for a new tool can help the rest of your staff get up to speed more quickly.

Request a trial from the vendors

The next step is to talk to the vendors and request a trial of their software. Set aside time to run real client data through the software. Consider re-performing selected audit procedures that you have already completed so that you can see the difference between how you did the audit manually and how you used the tool.

Be sure to try the tools out on a variety of clients: simple and complex, different industries, and different accounting systems. It’s important to figure out which types of clients you can or can’t use the tool on, and which types of tests or procedures you can perform with the tool. Both of these will help you to determine what the benefits of the tool may be across your portfolio of clients, and you can use that to determine how much benefit you may see from the tool versus the cost of the tool.

Audit analytics tools are ready for your firm

Audit analytics tools are a mature set of software that automate existing audit procedures—they are ready for your firm to adopt today. Take the summer to check out some of the tools and figure out which tool is right for your firm. You’ll want to have it figured out before you go into engagement planning in the fall so that you can incorporate the use of the tools into your engagement budgets and updated workplans.

Donny Shimamoto, CPA.CITP, CGMA, is Managing Director of IntrapriseTechKnowlogies LLC. You can contact him at donny@intraprise.us.

This article appeared in the spring 2020 issue of the Washington CPA Magazine. Read more here.

Join Donny at the Spark Technology Virtual Conference on December 3, where he will share how to look at your firm’s “tech stack” (the apps you use for client service and operations) and identify opportunities for innovation, increased integration, and workflow management. Learn more about the conference here.

You can also join Donny at the Fraud Virtual Conference on December 10, where you will get a better understanding of how big data, AI, and blockchain will be incorporated into accounting information systems and how they also present opportunities for better fraud prevention and detection. Learn more about this conference here.