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2-2 Short Paper: Analytical Procedures and the Audit Process
ACC411
Southern New Hampshire University
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Subject: Explanation of how and why data analysis is used in diverse stages of the financial
audit process
The financial auditing process involves the thorough evaluation and investigation of
the financial statements of an organization. It helps in making sure that the financial records
that have been captured in the statement give a true and fair picture of the organization’s
transactions (Understanding a financial statement audit - PWC. pwc, 2021). Data analysis is
imperative while performing financial auditing since it helps in obtaining reasonable
assurance about the accuracy and reliability of the details that are captured.
Risk assessment stage
The role of data analysis is imperative in the risk assessment stage of the financial
auditing process. When auditors evaluate and analyze a large volume of financial data of a
business entity, they get an opportunity to review and identify processes that support the
audit processes and procedures. There is the potential for obtaining new insights into the
approach that a firm uses to treat its financial transactions. For example, a comprehensive
and in-depth data analysis can help in not only understanding the operations of a business
entity but also identifying the risks relating to fraudulent activities (Tysiac, 2015).
Determination of sampling method and audit universe
The data analysis process is of paramount importance when it comes to choosing the
sampling method in the auditing process. This analysis can help to mitigate the risks
associated with sampling. Sampling risks arise when the selected data sample does not act as
the representation of the population. The data analysis process can help to ensure that a
proper sample has been identified that perfectly represents the entire population in the
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auditing context. In the audit universe, the data analysis process can add value by ensuring
that the sample that is chosen gives an insight into the integrated data and the auditing
activity is carried out in an accurate manner.
Substantive procedures stage
In the financial auditing context, the substantive procedures stage basically involves
the creation of evidence that is assembled by an auditor to support the completeness,
accuracy, validity, and reliability of the financial statements of an organization. The data
analysis process plays a key role in the specific stage since it enables auditors to go through
the details and financial records captured in the financial statements and detect any
discrepancy in the accounting transactions. The evaluation of financial data can help in
testing diverse elements such as the classes of transactions, accounting balances as well as
disclosures. An auditor can rely on data analysis for achieving the objective of the financial
audit process and ascertain the effectiveness and efficiency of the available procedures (As
2305: Substantive analytical procedures. Default, 2021).
End of audit stage
Even at the end of the financial audit stage, data analysis is considered to be
imperative. When the audit process nears the end, an auditor can apply the principles of data
analysis for enhancing the quality of the audit. The detailed analysis can help to ensure the
entire activity has been carried out in a streamlined manner and there exist no gaps. Data
analysis can help in confirming the outcome of the financial auditing process. It can help to
ensure that a proper review of the financial information has been carried out by an
organization and a fair and honest financial picture is presented (Tysiac, 2015).
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Refereences
As 2305: Substantive analytical procedures. Default. (2021). Retrieved July 6, 2022, from
https://pcaobus.org/oversight/standards/auditing-standards/details/AS2305
Tysiac, K. (2015). Data analytics helps auditors gain deep insight. Journal of Accountancy,
219(4), 52.
Understanding a financial statement audit - PWC. pwc. (2021). Retrieved July 6, 2022,
from https://www.pwc.com/im/en/services/Assurance/pwc-understanding-financial-
statement-audit.pdf
