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Power Auditing by Data Analytics

There term data analytics is trending worldwide for all the right reasons. You must have heard of data analytics but probably don’t understand what the term means. Well, we will not only help you understand the term better but look at how data analytics can help you in the field of auditing.

What is Data Analytics?

Data analytics is the process of analyzing data that is in raw form, to find useful information within it and make conclusions regarding the information. Often times, data analytics is carried out through specialized systems and software. Through the use of these systems and software, data is extracted and categorized to identify and analyze any patterns or trends within the data.

But you may be wondering what are the advantages of data analytics? Businesses use data analytics in many forms to their advantage. Data analytics can be used to enhance the decision-making process of a business as it allows businesses to analyze data much better in all fields of the business.

Similarly, data analytics can be used in the marketing process of a business to analyze the data regarding the customers of the business. Because of data analytics, businesses can enhance the quality of their products and tailor specific marketing campaigns towards their customers.

Finally, through the application of data analytics, businesses can enhance their processes and save costs by streamlining these processes. This is because businesses obtain a better understanding of their processes through the use of data analytics. Since the process of data analytics also allows businesses to understand their customers better, it can help businesses forge their processes according to the needs of their customers, thus saving time and costs.

Uses and benefits of data analytics in audits

Now that you understand what data analytics is and why it is important for businesses, let’s take a look at how data analytics can help in the process of auditing.

Data analytics can be applied throughout the audit process to enhance the process. Most larger audit firms already use data analytics within their audit process while smaller audit firms have started to adopt it. They use data analytics in different stages during the audit process such as risk assessment, audit planning, test of controls, analytical procedures, etc.

Overall, data analytics can be used to gain an understanding of client’s business by analyzing the data, both financial and non-financial. Data analytics can be used to structure this data into a visual output rather than numbers to allow the auditor to identify any patterns or trends within the data. This also allows auditors to easily identify any irregularities within the data, which would be difficult to identify in an unorganized numerical data.

In assessing the risk of a business, auditors can use data analytics to obtain the latest information regarding the business from social feeds, news feeds, market feeds. This information can be stored in a structured manner to help the auditor analyze the risks involved in the audit process. This can also help auditors analyze any risk and control issues and adjust their audit procedures accordingly.

Similarly, when testing the controls of business, data analytics can be used to identify any instances of inefficiencies within the internal control of the business. Data analytics can also be used to detect any trends in control issues. This can help the auditor detect any frauds within the organization. Data analytics can also be used to test data to assess whether the internal controls of the business are effective or not.

Data analytics is also a great screening tool to detect any instances of fraud within the business. This is because it can be used to detect any anomalies in data and detect any manipulation in the financial statements, which can be an indicator of fraud. Even if the irregularities are not caused by fraud, they still need to be analyzed by auditors to determine what caused them.

Due to the time restraint and the quantity of data that auditors must analyze, manually going through all the data can take a lot of time. Data analytics can easily take over the manual analyzation of data for the auditor and save time during the process, thus, leaving the auditor to focus on other tasks. Similarly, data analytics allows auditors to easily increase their sample size during the audit without worrying about deadlines as all processing is done automatically.

Data analytics also allows group auditors to apply consistency across group audits by using the same technology and processes for all the companies within the group. This allows group auditors to gain a better understanding of the group and get an overall view of the group.

Examples in data analytics application in audits

While we saw how data analytics can be used and is beneficial for audit purposes, we will now look at how auditors use data analytics practically in audit assignments. Examples of application of data analysis within audits are as follows:

  • Three-way matching. Comparing purchase order with the related invoice and the invoice with the related goods received notes for purchases, for instance.

  • Trend analysis. Analyzing revenues and expenses for any specific trends and identifying any irregularities.

  • Variance analysis. Analyzing expenses and revenues against standard processes for any irregularities.

  • Segregation of duties testing. Identifying combinations of personnel involved in the processing and authorizing transactions.

These are some of the examples of the practical usage of data analytics within the audit process.

Challenges of using data analytics

If you are wondering why data analytics hasn’t been adopted by some audit firms, then there are many reasons for it. There are many challenges that auditors have to face to implement data analytics properly. Some of these challenges are as below.

One of the challenges of data analytics is that it can be a threat to the confidentiality of the private data of clients. Data analytics involves copying and storing the auditee business’ data within the auditors’ systems. In the case of a data breach, this data can be exposed. This may lead to legal issues for the audit firm and the firm can lose its reputation as a result.

Similarly, the auditee business may not agree to provide the auditors with all the data due to various reasons. Therefore, data analytics may not be used throughout the audit process. Due to this reason, the same standards cannot be applied for all auditee businesses, if they won’t allow it, thus, resulting in inconsistent results for different audits.

Auditors also need to learn how to properly use data analytic tools for the best results. The use of data analytics across the auditing process is not effective if data processed and extracted by these tools cannot be interpreted properly by the auditors. This poses a challenge to the use of data analytics as it requires the auditors to be trained to properly use these tools to their advantage.

Another challenge for the use of data analytics is that while these tools can be useful in processing data, the data is still provided by the auditee business. This means that this data can still be manipulated by them. Similarly, the data required for these tools to function may not be readily available and needs to be extracted. If data cannot be extracted or the data is incomplete, then the data analytics tools cannot perform effectively.

These are some of the examples of the challenges posed to auditors for using data analytics.


Data analytics is the use of systems or software to analyze data and extract useful information from it. While data analytics has been used in other industries, it is fairly new in the auditing industry.

There are many uses and benefits of data analytics in audits throughout the auditing process, such as risk assessment, audit planning, test of controls, etc. However, using data analytics within these processes may come with a few challenges.

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