Question

Reference

Whittington, R., & Pany, K. (2019). Principles of Auditing and Other Assurance Services. New York: McGraw-Hill Education.

Prompt: For this short paper, you will prepare a memo to management that explains how and why data analysis is used in the various stages of the audit process, including the risk assessment stage, the determination of sampling method and audit universe, the substantive procedures stage, and the end of the audit. Review Chapter 5 of the textbook to support your work.

Specifically, the following critical elements must be addressed:

 Data Analysis: Risk Assessment Stage: Explain how and why data analysis is used at the risk assessment stage of the audit process.

 Data Analysis: Determination of Sampling Method and Audit Universe: Explain how data analysis is used in the determination of sampling method and

audit universe.

 Data Analysis: Substantive Procedures Stage: Explain how and why data analysis is used at the substantive procedures stage of the audit.

 Data Analysis: End of Audit: Explain how and why data analysis is used near the end of an audit.

Answer 1

Audit Firm Letter Head

MEMORANDUM

TO: Client Name

FROM: Firm Name

RE: Relevance of Data Analysis in the Auditing Process

DATE: MM/DD/YYYY

The objective of this Memorandum is to exhibit the relevance of Data analysis in the Auditing process.

Auditing is a systematic and independent examination of the processes, procedures, accounting software, accounting records, financial statement, human resources and fixed assets of an entity. Hence,we can say that auditing a comprehensive examination of an entity as whole to gain insights about an entity and thus enabling the auditor to comment upon the financial and operational performance of an entity.

In today's times of Multi country presence, the operations of the organization are so complex and scattered along 100's or in some cases 1000's of locations, that the volume of data generated is humongous in quantity and variety. Now, without the use of specialized software and data analysis tools, it becomes cumbersome for the auditor to go through them and gain insight about the operations of the company. Hence. usage of Data analysis for the auditor becomes imperative in order to provide better services to the users of its opinion.

Data analysis is a process of implementing logical reasoning and statistical formula to a set of data to draw meaning conclusion and support decision-making. So, while auditing, when auditor are given huge quantities of data (structured or unstructured), the auditor instead of going through the data manually, use software and data analytical tools to draw meaningful conclusions and insights about the company.

Data analytics is pervasively used in various stages of the audit process, including but not limited to the risk assessment stage, the determination of sampling method and audit universe, the substantive procedures stage, and at the audit closure.

Auditor use data analytics to analyze patterns, deviations and inconsistencies, and extract other useful information in the data underlying or related to the subject matter at the planning stage of auditing. In other words, they try and understand the most important and risky areas of the company with the help of data, so that emphasis and due consideration can given to them at the execution stage.

Auditors also draw sample data and audit universe through data analytics these days. Auditor identifies trends and similarity in the data to draw an audit sample which covers the entire population of the data and areas of the operation.

Further, at the stage of stage of applying substantive procedures, auditor uses data analytics for testing classes of transactions & balances. It follows audit trails generated by a transaction to ensure that company procedures and policies are followed or not.

Now, finally at the audit closure, data analytics helps auditor to collect instances and audit evidence pertaining to a particular audit observation. Further, data analytics helps auditor ensure the completeness of the audit scope and areas.

We would like to conclude by reiterating the imperativeness of Data analytics in auditing.

Audit Lead

Signature

Audit Firm Name

Stamp of the firm