565 Research Paper

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“Big data is NOT about the data.” Gary King, Harvard University

“If you torture the data long enough, it will confess.” Ronald Coase, economist

“Information is the oil of the 21st century, and analytics is the combustion engine.” Peter Sondergaard, then Head of Research, Gartner Research

Big Data and Auditing

• A collection of data sets that are too large or too complex to analyze them with traditional databases and tools.

• Standard descriptions usually include: • Volume • Variety • Velocity • Veracity

What is Big Data?

March 3, 2017 16th Annual Accounting Educators Seminar - University of

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What is Big Data?

March 3, 2017

http://www.ey.com/gl/en/services/advisory/ey-big-data-big-opportunities-big-challenges 16th Annual Accounting Educators Seminar - University of

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• Accounting professionals need to know how to conduct data analytics regardless of whether it is “Big”.

• Transactional Data can tell us what has happened, Big Data and data analytics can often help explain why.

• We need to embrace both.

Data vs. Big Data

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What is the Impact on the Accounting Professional?

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• Audit – Internal and External

• Data driven audits

• Better experience for the client

• Better experience for the auditor

• More valuable insights

• Improving corporate compliance

Implications for Accounting Professionals

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• Advisory Services

• Identify questions

• Use analytics to help business improve performance

• Build analytical models

Implications for Accounting Professionals

March 3, 2017 16th Annual Accounting Educators Seminar - University of

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• An employee with the following skills:

• Ability to understand big data technology structures • Ability to construct experiments, gather and analyze data, make evidence-

based decisions • Strong communication skills • Strong quantitative skills in statistical analysis, visual analytics, machine

learning, and ability to analyze unstructured data • Business expertise – a good sense of where to apply analytics and big data

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What are employers looking for?…

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Data and Analytics

• Data are facts and statistics collected together for reference or analysis.

– known or assumed as facts

• Payroll register

• Sales Journal

– make the basis for reasoning or calculations

• Analytics are the systematic computational analysis of data.

– Research potential trends

• Evaluate causes of increase in employee costs

– Identify risks

• Identify missing sales invoice numbers

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Social Media Text Analysis Please Insert Exhibit G.1

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Data Chain

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Analytics Chain

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The Next Generation of Auditing

• Currently, auditors focus on client data, as do most companies.

– Internal auditors have used big data to detect insurance and purchasing card fraud based on

anomalous payments.

– Target sends ads to women deemed “likely pregnant” based on specific non-baby-related purchases

and upset a teenage girl’s father by sending advertisements for baby supplies based on her

purchases. Turned out, Target knew before she did!

• However, it is easy to see how auditors could improve risk assessments and analytical

procedure expectations using external data.

– Walmart: Hurricanes increased sales of not only flashlights and water, but Pop tarts by 7x the

normal rate!

– Using Google’s Profile of Mood States and 10 million tweets, researchers predicted stock price

changes 3-4 days in advance.

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PwC | Applications of data analytics in auditing

A taxonomy for analytics

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PwC | Applications of data analytics in auditing

A taxonomy for analytics

•Descriptive(and diagnostic) analytics–What is happening? Why it is happening?

•Traditional business intelligence (BI) and visualizations (pie-charts, bar-charts, line-graphs, tables, or generated narratives).

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PwC | Applications of data analytics in auditing

A taxonomy for analytics

•Predictive analytics–“What is going to happen?” (What is likely to happen?)

•Regression analysis, forecasting, multivariate statistics, pattern matching, predictive modeling, and forecasting (among others).

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PwC | Applications of data analytics in auditing

A taxonomy for analytics

•Prescriptive analytics–“What should be done?” (or What can we do to make something happen?)

•Graph analysis, simulation, complex event processing, neural networks, recommendation engines, heuristics, and machine learning (among others).

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PwC | Applications of data analytics in auditing

Examples of analytics in ITGC

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02

New User Testing

• Appropriate management needs to approve access to all new users

• A brand new employee that is a telephone operator should not get access to edit financial data

04 Revocation Testing • Appropriate management should revoke

access to users who no longer require access to an application

• If an employee leaves a company, he or she does not need access to any of the company’s applications.

ITGC’s

03 Change Management

• Controls are put in place to prevent the Segregation of Duties (SOD) risk, in which user roles are clearly distinguished to prevent an overlap of responsibilities.

• Developers and deployers should not be the same person.

• Users who have the ability to post financial data to systems should not have the ability to also approve the transactions.

• Appropriate management needs to approve every change that is made to an application.

• This ITGC is used to prevent unnecessary or harmful changes from being deployed to the application

01 SOD

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PwC | Applications of data analytics in auditing

Examples of analytics in key calculations/reports

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• Companies rely on certain key calculations to assist in financial reporting.

• Procedure of testing key calcs entails understanding the underlying calculation, receiving and validating the input data, and reperforming the calculation.

Key calculations

Key reports testing

• Key reports are systematically generated reports which show the results of the key controls in an application.

• Companies test the completeness and accuracy of each key report.

• Management makes critical business decisions based on the results of these reports.

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PwC | Applications of data analytics in auditing

Big Data in the auditing field

•The pace of adoption of BD&A in statutory audit has been lower than in other fields (e.g. internal audit, marketing, strategic decision-making)

•Using BD&A in auditing is about enhancing audit quality

•BD&A is being approached in the auditing practice with the aim of improving the efficiency and effectiveness of audits

•BD&A has the potential to represent the most significant shift in how audits are performed since the adoption of paper less audit tools and technologies

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PwC | Applications of data analytics in auditing

Big Data in the auditing field

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PwC | Applications of data analytics in auditing

Big Data in the auditing field: what are the benefits?

•Auditors can test a (far) greater number of transactions, overcoming sample limits

•Auditors can test a (far) greater number of transactions, overcoming sample limits

•Audit quality can be increased by providing grater insights on auditee's processes

•Frauds will be easier to detect

•Auditors can better plan the audit engagements

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PwC | Applications of data analytics in auditing

Big Data in the auditing field: what are the benefits?

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PwC | Applications of data analytics in auditing

Challenges of Big Data in Auditing

•Focus of data analysis toward recognizing patterns within large amounts of data

•Consequent to continuous auditing systems the numbers of identified exceptions and anomalies are expected to increase dramatically

•Prioritization methodologies which incorporate the decision-support systems can greatly help alleviate the burden of processing information

•Lack of the adequate training and required skills to analyze Big Data