The ability to utilise data analytics and “big data” to achieve a competitive advantage and manage operations and strategic plans ranks among the top risk issues for board members and C-suite executives worldwide. In combination with an ever growing set of demands from boards and executive management for deeper insights into strategic risks, analytics and robotics are top priorities for chief audit executives looking to offset the mounting workload of themselves and their teams. By leveraging effective data analytics strategies, a business can boost efficiency, while improving the quality of evaluation risks and controls receive, as well as placating stakeholder scrutiny.
Data analytics can be applied across three key areas. In terms of planning, it can be used for effective risk profiling, the testing of data via simulation, and statistical sampling. Data analytics can also enhance the execution of audits – providing quick and effective monitoring of continuous controls, keeping watch for indications of fraud (which cost UK firms alone over £2 billion last year), recognising patterns to anticipate future risks, and control simulation. Finally, it can enhance reporting of risk quantification, real-time exception management, and root cause investigations, to provide better understanding of how to avoid future breaches.
Data analytics is subsequently gaining a growing foothold in internal audit. According to a recent report, two out of three departments now utilise the technique as part of their internal audit process, seeking valuable improvements, efficiencies and insights buried within internal workflows and cultural habits. At companies where data analytics is a dedicated part of the governance (i.e. a separate team or function), the growth in demand was significantly higher, at 80%, with an 11% higher percentage score for ‘significant increase’.
According to a new report from consulting firm Protiviti, however, despite the potential of data analytics, due to the nascence of the technology which remains in a phase of rapid development, many of its applications remain untapped. In line with this, the use of analytics in auditing remains in its early stages, as the maturity of using analytics in the audit process remains relatively low.
Partially this is likely due to the fact that many firms are fundamentally not ready for full leveraging of data analytics. While 76% of organisations in Asia Pacific and Europe currently employ data analytics in their auditing efforts, only 58% and 59% respectively believe the data available to be analysed is up to scratch. The gap is even more pronounced in the US, where while 63% of entities use data analytics in their auditing process, 28% said the data available was of high quality.
Protiviti’s researchers believe that another reason why firms are not fully realising the potential of data analytics could be that many audit functions are likely using analytics tools as point solutions as opposed to part of broader initiatives to leverage analytics throughout the audit process. In order to work toward improving the current situation, the consulting firm set out a ten-point programme for Chief Audit Officers to follow, in order to get the best from data analytics in auditing.