Business is not about how much data you produce, but what you do with it.
Eric Schmidt of Google once said that every two days we create as much information as we did from the dawn of civilisation up until 2003.
Except that he said that four years ago. According to IBM, we now create 2.5 quintillion bytes of data a day – so much that 90 per cent of the data in the world today has been created in the last two years alone. Suddenly, four years is a long time.
Not surprisingly, most business people have realised that it is not how much data you produce that matters, it is what you do with it that counts. Using information to predict future behaviour is an obvious opportunity.
However it is only recently that the important role of data and analytics (D&A) in audit has emerged as a real value-adding opportunity in the audit profession.
Audit committees, boards, regulators, indeed all stakeholders have become more demanding in terms of wanting to interrogate all the data sets available within an organisation, data sets which often reside on different IT platforms that may not be connected.
Advanced technology means that auditors can concentrate on higher risk areas helping identify outliers and anomalies in the data and then bringing professional judgement to bear.
According to Conall O’Halloran, head of audit at KPMG: “Data and analytics technologies and refined audit processes means we can analyse 100 per cent of the data. This means that there is less reliance on sampling techniques and ultimately much better audit evidence is available.
“This also means that fraud can be easier to identify; when you are looking for anomalies in the data it is clearly better to assess the entire data bank.”
So what specifically can D&A do that might not have previously been possible?
Selwyn Hearns leads the D&A team at KPMG and is enthusiastic about what proper use of D&A can deliver.
“Better ‘evidence’ resulting from sophisticated technology allows professional judgment to come to the fore and for the auditor to be more certain in relation to facts and exceptions,” he says. “Trends and exceptions in the data can also highlight risks in the business that had previously gone unnoticed.”
Hearns gives the example of a company where a full-scale interrogation of data that had previously been siloed uncovered significant quantities of stock nearing obsolescence which was not detected by management’s systems.
D&A helped uncover the issue and forced a more realistic value being placed on the goods along with a management plan to get rid of the excess.
Given his role as head of audit at KPMG, O’Halloran also has an interest in the impact D&A is having in the context of regulation and compliance. He observes that tax regulators in particular are demanding more in terms of an “entire file” approach from those with whom they engage – driving standards up but also creating potential major data issues with which boards need to be fully compliant.
It is also altering the nature of some audit work – a point of relevance to many of the hundreds of Irish college graduates considering the accounting profession generally and auditing in specific.
“Incoming graduates are very proficient in new technologies,” O’Halloran notes. “They expect us to have leading-edge systems to train on and to help them develop the insights they aspire to accumulate. The use of D&A tools as an integral part of an audit also provides a better work and learning experience for trainees.”
The ability to track and validate data also has a role in Ireland’s significant financial services sector. For example, auditors can use D&A to validate the work of fund managers.
“D&A tools can be deployed to automate certain verification processes which again allows for a fully comprehensive validation of the data,” O’Halloran says.
In the context of ever more sophisticated analytical tools, Hearns notes that it is not just about technology.
“We have the tools to extract and process the data, the critical element is the ability to interpret and present the data to our teams and decision makers in a meaningful way.
Judgment becomes the more important component, as does the ability to interact with the data and that’s increasingly where we see an opportunity to help more companies.”
O’Halloran believes there is a role for D&A in every sector and that while there has been a lot of noise about Big Data and the role of analytics it is still a simple principle, “D&A helps senior decision-makers bridge the gap between the knowledge they need and the data they have”.