Integrating Data Analytics into a Risk-Based Audit Plan
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Presented at a IIA Chapter Meeting. Although most would agree that internal audit provides an assurance function, it can also be a value-added service. One such value is identifying areas of improvement. This presentation looks at how data analytics can be used within the audit process including risk and controls assessment. SLIDESHARE: www.slideshare.net/CaseWare_Analytics WEBSITE: www.casewareanalytics.com BLOG: www.casewareanalytics.com/blog TWITTER: www.twitter.com/CW_Analytic
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Integrating Data Analytics into a Risk-Based Audit Plan
- 1. INTEGRATING DATA ANALYTICS INTO A RISK-BASED AUDIT PLAN
- 2. DRIVERS OF RISK MANAGEMENT Risk is high on the agenda for boards today due to: • A focus on cost reduction • A desire for added value • An evolving regulatory environment • Technological changes and availability of data
- 3. STAKEHOLDER PERCEPTIONS The overwhelming opinion of 1,700 executives participating in both the 9th and 10th annual PwC State of the Internal Audit Profession Study is that IA needs to reach for new heights and contribute to the organization in a more meaningful way. Source: PwC 2014 State of the Internal Audit Profession Study
- 4. VISIONARY APPROACH TO RISK The building blocks to successful risk management
- 5. WHERE DO YOU WANT TO BE? Source: IIA, Pulse of the Profession, Defining Our Role in a Changing Landscape Report
- 6. A VISIONARY APPROACH Creating a visionary approach to risk is: • Not just about technology • Applicable to all levels of a business • A matter of culture and philosophy • Integrated into how things are done everyday
- 9. PAVING THE PATHWAY TO SUCCESS To have a visionary team, you need a visionary leader. But there will be challenges in forging this new path: Innovation and Technology External Stakeholders Internal Challenge
- 11. BECOMING A TRUSTED ADVISOR Source: PwC 2014 State of the Internal Audit Profession Study
- 13. BROADENING AUDIT LANDSCAPE Comparison of average audit plan composition between 2013 and 2014 shows that in very little time, the coverage of internal audit is broadening drastically. IA is now expected to allocate more time to business strategy, risk management effectiveness, and governance than ever before. Source: IIA, Pulse of the Profession, Enhancing Value Through Collaboration Audit Plan Coverage in 2013 vs. Audit Plan Coverage in 2014
- 15. BUILDING A TEAM OF EXPERTS Gaining value from an investment in people and technology is a top priority when building your audit team. Effective data analysts are those who demonstrate critical thinking. Source: IIA, Pulse of the Profession, Enhancing Value Through Collaboration
- 17. Adapted from: EDPACS, 2014, Performing a Strategic Risk-Based Assessment RISK BASED AUDIT UNIVERSE
- 19. RESULTS FOCUSED ANALYTICS Using insights to drive results in risk-based audits
- 20. Source: EDPACS, 2014, Performing a Strategic Risk-Based Assessment
- 21. DATA ANALYTICS FROM END TO END First step to effectively incorporate data analytics within your audit process using a risk-based approach is to begin with the audit plan. Using data analytics will help to: • Focus your audit • Allocate resources effectively • Save time (less time onsite) • Learn more about the business
- 22. RISK AND CONTROLS ASSESSMENT Purchasing Card Example:
- 25. DATA ANALYTICS FROM END TO END In the execution phase, it is important to analyze 100% of the data during your audit execution in order to: • Eliminate sampling risk • Report on validated insights • Save time • Address control deficiencies • Establish a root cause analysis
- 26. NEXT STEPS Using data analytics from end to end within the audit universe requires a continuous stream of analytics processes. While not entirely the final step, using analytics within your audit report is important in gaining alliance with corporate stakeholders. Your audit report should: • Contain validated deficiencies • Highlight root causes • Provide recommendations • Be clear and understandable
- 27. MOVING AHEAD: DATA DISCOVERY We currently use data as a tool to display findings in a unique and easy-to-digest format, but the future of audit lies in the ability to use visual data discoveries to enhance your audit potential and enable you to: • Visualize frequencies and anomalies • Probe further into visual discrepancies • Visualize a more in-depth picture of a controls framework
- 28. SUMMARY • Be creative about how you approach data analysis • Invest in the people and tools necessary for success • Provide value for management from data analytics • Eliminate sampling risk • Use data analytics to scope audit engagements
- 29. INTEGRATING DATA ANALYTICS INTO A RISK-BASED AUDIT PLAN Visit casewareanalytics.com Email salesidea@caseware.com
Editor's Notes
- Why do we need to be proactive with a risk based approach? “Living at risk is jumping off the cliff and building your wings on the way down” - Ray Bradbury –
- 3 years ago, the VP, IA got audit committee buy-in to implement IT audit and data analytics capabilities within the department. Implementing advanced data analytics capabilities within a department cannot be treated as a “side of desk” job, but rather has to be treated as an all-out project Implementing data analytics requires people, process & technology
- Established via added value, which comes from good (value added) recommendations. What is value added?: Quantifiable impact, expense reductions, process improvements Although a necessary part of the audit function, compliance audits are the least value added from the perspective of operations and understandably so. Therefore make the findings and recommendations (for action items) make sense by properly outlining the residual risk of NOT addressing the finding)
- Talk about output (20% increase in audit reports – more coverage with same udgeted hours – not just a mile wide or mile deep)
- The talent crunch: It is estimated that by 2018, between 150-180K jobs requiring deep analytical skills will be vacant. Another 1.5M managers and staff members who know how to analyse large data will be vacant. Hire talent, keep it and develop internally In our case, I was brought in 2 years ago, and am in the process of developing a secondary resource with expert analytical skills and plan on working with a 3rd staff member in the future. Advance data analysis skills are no longer an asset, but a requirement for a strong audit department.
- Planning process before analytics: The inherent risk is known and interviews, process flow diagrams and control descriptions are used to identify residual risks (essentially unaddressed inherent risk); professional judgment is used in determining scope and objectives. How does data analytics contribute in planning? Another way in which to help identify residual risk; Another way in which to identify control failures; A tool (over and above professional judgment) to identify high inherent risk areas so as to include in the testing; and A tool to help identify potential control weaknesses to include in testing or findings Result: Smaller scope, less budgeted hours per mandate, larger and more value added coverage of risks. Also we deliver more reports in 1 year. ------------------------------------------------------------------------------------------------------------------------------------------- Testing process prior to data analytics: Random and Judgmental sampling based on scope. Substantive testing. How does data analytics contribute in testing? Targeted sampling Fine tuning of scope based on objectives (as new data is received) 100% sample testing as opposed to substantive sampling (when possible) Results: Less hours spent testing, more coverage of processes with 100% testing, greater coverage of risks