Exploring the Growing Use of Technology in the Audit, with a Focus on Data Analytics

In September 2016, the International Auditing and Assurance Standards Board (IAASB)’s Data Analytics Working Group (DAWG) released a Working Group Paper, Exploring the Growing Use of Technology in the Audit, with a Focus on Data Analytics. The Paper is open for comment until February 15, 2017. In addition, this publication is a call for nominations for a newly formed Project Advisory Panel to further advise the IAASB and the DAWG on developments relevant to standard setting.

The Paper provides insights into the opportunities and challenges with the use of data analytics in the audit of financial statements and outlines the insights gained from the activities to date. The purpose of the Request for Input is to:

• Inform stakeholders about the IAASB’s ongoing work to explore effective and appropriate use of technology, with a focus on data analytics, in the audit of financial statements; and 

• Obtain stakeholder input and perspectives on whether all the considerations relevant to the use of data analytics in a financial statement audit have been identified.

The DAWG paper (page 16) emphasizes that: “The use of data analytics in an audit of financial statements will not replace the need for the auditor to exercise appropriate professional judgment and professional skepticism. Strong views have been expressed by the IAASB CAG and at IAASB roundtables about the importance of the auditor having a thorough understanding of the entity and its environment in order to facilitate a high-quality audit in which professional skepticism is appropriately applied.”

For additional insights, refer to the June 2016 Audit Data Analytics Alert  issued by CPA Canada.

Using Good Decision Making to Drive Value

EY - The Future of Decision Making

Making the right decision is hard. Companies have to frame the questions properly, find the right data to support the analysis, and do all this in a way that is transparent and repeatable. In 2012, Ernst & Young LLP (EY) commissioned a survey of 285 senior executives globally from across the consumer products sector. 81% of participants indicated that they needed to improve their decision-making speed and level of insight.

Survey respondents suggested that their people spent too much time making decisions based on intuition, working on mechanical tasks and focusing on unnecessary detail. Instead, they wanted their people to be adding more value through better use of leading indicators, conducting root cause analysis of issues, and linking strategy with resource allocation, planning and reporting.

To improve their performance management capabilities and drive profitable growth, companies need to take a more encompassing approach that not only implements driver analytics, but also uses the analytics to mathematically link business strategies with the market, competitor, operational and financial forces that drive value and, by extension, good decision making. Learn more from the EY guidance, The future of decision making: 5 Insights for Executives.

PwC - Using Data and Analytics to Re-Imagine Forecasting

According to PwC (United States), we are always forecasting - thinking about what will happen, assessing its likelihood, and contemplating the implications. But for CFOs, the stakes are much higher. The cost of being off the mark can be huge, not just in perception but also in dollars. A company’s cost of capital can be impacted by their assumptions and forecasts, and failure to accurately forecast demand fluctuations can result in too much, or not enough, inventory. In each of these situations, the cost of being wrong today can become extremely costly in the future.

This paper talks about the steps and factors a CFO may consider as they re-imagine forecasting in a way that allows themselves and their counterparts in the C-Suite to tease out signals that matter and deliver more value to their organizations in the short and long term. Learn more from the 2016 PwC guidance, Reimagine forecasting: High stakes decision making for CFOs.

PwC - Gut & gigabytes: The art and science of big decisions

The February 2015 PwC booklet called Gut & gigabytes: The art and science of big decisions observes that: “Right now, intuition still prevails, with the majority of corporate decision-makers finding that listening to their gut is preferable to “paralysis by analysis.” More and more, however, executives will be pressed to defend their choices against contrary outcomes that were plainly visible in the data tea leaves. The key isn’t to favor one approach over the other — art versus science — but rather to cultivate and hone the role that instinct plays in our increasingly data-driven world (or, conversely, hone the role that data plays in our intuition-prone decision-making).

The booklet is supported by the 40-page report called Gut & gigabytes: Capitalising on the art & science in decision making. That report was prepared by the Economist Intelligence Unit, sponsored by PwC. It is intended to explore the agenda for big decisions and the process that business leaders will go through in making these decisions.

Big decisions are the most significant decisions about the strategic direction of the business (i.e., not concerned with day-to-day operations). Big data are the recent wave of electronic information produced in greater volume by a growing number of sources (i.e., not just data collected by a particular organisation in the course of normal business). Data analysis is the use of analytical techniques to generate new insights from data.

Executives know the right questions to ask. Now they need to know how to get the right answers from the data (and have the desire to do so). Those who do not should consider learning how. Those who resist doing so will gradually be replaced, as the next generation of data-savvy executives and future senior managers come through. By the time this happens, most executives should be using big data to make strategic decisions – rather than the other way around.

PwC - 10 Minutes on making big decisions

In PwC’s report called 10 Minutes on making big decisions (released in May 2015), it suggests that: “When it comes to making your most important business decisions, there are a plethora of factors to consider. Company leaders often rely on gut instinct to guide them — what we think of as the ‘art’ of strategic decision making. But, what about the ‘science’ side of the equation: data and analytics?"  

Consider that 85% of CEOs maintain that data and analytics creates value for their organizations. But, where and how are they realizing that value? One area ripe for the picking is strategic decision making. According to this report, superior decision making — done with confidence, clarity, and agility — is only possible through a combination of art and science.

"And most businesses have only begun to achieve this delicate balance: While 94% of respondents in PwC's Global Data & Analytics Survey 2014: Big Decisions said that senior management believe they are prepared to make their next big decision, just 38% relied on data

and analytics to do so.”