0
www.hanrickcurran.com.au
IDEA for ACATG
Understanding IDEA and applying its data analysis
capability for audit engagements...
Today’s Agenda
• Understanding data
• What is IDEA
• How and when do we use IDEA
• Some general comments on IDEA
• Q&A wit...
Data mining & big data
• Google data mining and you get 97,500,000 results
• Google big data and you get 774,000,000 resul...
McNamara – The Fog of War
•Empathize with your enemy
•Rationality will not save us
•There's something beyond one's self
•M...
What is IDEA
• IDEA is a data analysis application (tool)
• IDEA can be run on a laptop (microcomputer) or be loaded
onto ...
Where can you use IDEA
• If IDEA is loaded to a laptop, you can work from the clients
premises.
• The advantage of this is...
What hardware is needed for IDEA
• Generally any reasonably modern laptop should be able to
handle IDEA
• The better the m...
What does it cost $$$$$
• Not sure . . .
• In my experience, the biggest costs are:
training and time to use
8experience. ...
Are there alternatives? YES
• Think about the limitations of excel . . .
9experience. new thinking
Excel’s data limits
1experience. new thinking
And before that, probably only 7,000 rows in earlier Excel and Lotus applica...
Are there alternatives? Excel
• With 1,000,000 million rows, probably most of our analysis
can be done in Excel.
• Analysi...
Are there alternatives?
• Other alternatives include CCH’s Active Data
(see www.cchsoftware.com.au)
• Another alternative ...
SOME SLIDES FROM IDEA’S
DISTRIBUTOR FOLLOW
1experience. new thinking
14
j
IDEA allows you to import and export
data from and into a multitude of
formats, including files originating
from larg...
15
• IDEA protects the source data by allowing read-only access to the client's data to avoid any
unwanted changes, and ma...
16
IDEA creates a record of all changes made to a file (database)
and maintains an audit trail or log of all operations ca...
17
18
• Testing entering data controls
• Data dictionary errors (undefined codes)
• System weaknesses (Code 99, Free style fi...
19
Audit Types:
– Quantitive analysis
– Testing efficiency and effectiveness (e.g., delays)
– Identify specific transactio...
Fraud investigations
 Purchasing, payroll, money laundering
Financial and other analyses
 Customer and other sales profi...
Fraud investigations
Payroll
 Ghost employees
 Changes to salary
 Changes to benefits
 Overtime payments
Purchasing
 ...
HURDLES AND
ROADBLOCKS
2experience. new thinking
IMHO the biggest are:
People’s skill and experience in
working with data
Time required to complete analysis vs
audit budge...
Other roadblocks
• Data access – client consent required and reluctance to give
access to systems
• Data access – requirem...
Other hurdles
• Lots of data laying around = litigation risk
• Teams need good discipline in cleaning up client data files...
BENEFITS AND WHEN TO
USE IDEA
2experience. new thinking
ASA 500 – requirements for audit evidence
• A52. … The means available to the auditor for selecting
items for testing are:...
IDEA enables testing
• Can test the entire population
• Limits sampling risk
• Still need to pay attention to accuracy and...
KEY areas to use IDEA
• Sampling (i.e., CMA / DUS / MUS )
• Stratification
• Extraction of unusual items
2experience. new ...
Client size for IDEA
• Audit fee < $10,000 = probably not worth it, unless you are
looking for something or want to perfor...
Client industries for IDEA
• Generally good for industries with large transaction volumes
where transaction amounts are sm...
Planning is key!
• When you are going to use IDEA, plan for it
• Discuss it with the client and get there buy in
• Identif...
What do clients think?
• We don’t usually go through the testing approach with them,
but they love it when we have data th...
Some questions . . .
From:
Sent: Wednesday, 23 April 2014 9:46 AM
To: Matthew Green
Cc:
Subject: FW: IDEA Presentation
My ...
YOUR PRESENTERS
3experience. new thinking
Disclaimers
This document contains information in summary form and is therefore intended for general guidance only. It is
...
Topic  Date
Thank you
www.hanrickcurran.com.au
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Australasian Chartered Accountants Training Group - Using IDEA for auditing client data

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A presentation to the 2014 partners conference of the Australasian Chartered Accountants Training Group on when, where, how and why to use data mining and data analysis techniques in auditing client data, specifically in applying the IDEA software in this context.

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Transcript of "Australasian Chartered Accountants Training Group - Using IDEA for auditing client data"

  1. 1. www.hanrickcurran.com.au IDEA for ACATG Understanding IDEA and applying its data analysis capability for audit engagements April 2014
  2. 2. Today’s Agenda • Understanding data • What is IDEA • How and when do we use IDEA • Some general comments on IDEA • Q&A with experienced users 2experience. new thinking
  3. 3. Data mining & big data • Google data mining and you get 97,500,000 results • Google big data and you get 774,000,000 results • The explosion of data and its use is not going to go away • Auditors need tools to respond to the massive increase in data that clients can make available • IDEA is one tool to make this happen 3experience. new thinking
  4. 4. McNamara – The Fog of War •Empathize with your enemy •Rationality will not save us •There's something beyond one's self •Maximize efficiency •Proportionality should be a guideline in war •Get the data •Belief and seeing are often both wrong •Be prepared to re-examine your reasoning •In order to do good, you may have to engage in evil •Never say never •You can't change human nature 4experience. new thinking Eleven Lessons from the Life of Robert S. McNamara These topics were selected by Errol Morris and highlighted in the film; they were not selected by McNamara. IDEA provides a window into the data, enabling decisions and analysis
  5. 5. What is IDEA • IDEA is a data analysis application (tool) • IDEA can be run on a laptop (microcomputer) or be loaded onto a clients network/servers/mainframe computers (subject to licensing) • IDEA is designed to analyse data sets (i.e., rows and columns of data) 5experience. new thinking
  6. 6. Where can you use IDEA • If IDEA is loaded to a laptop, you can work from the clients premises. • The advantage of this is that as issues are identified, they can be discussed with the client. • More commonly, the analysis is performed as part of the audit field work. 6experience. new thinking
  7. 7. What hardware is needed for IDEA • Generally any reasonably modern laptop should be able to handle IDEA • The better the machine, the better the analysis performance • When I as a junior auditor, sometimes I would set up tests and then let them run overnight . . . (but I think computer performance has improved since then) 7experience. new thinking
  8. 8. What does it cost $$$$$ • Not sure . . . • In my experience, the biggest costs are: training and time to use 8experience. new thinking
  9. 9. Are there alternatives? YES • Think about the limitations of excel . . . 9experience. new thinking
  10. 10. Excel’s data limits 1experience. new thinking And before that, probably only 7,000 rows in earlier Excel and Lotus applications.
  11. 11. Are there alternatives? Excel • With 1,000,000 million rows, probably most of our analysis can be done in Excel. • Analysis in Excel using the native functions is a possibility, but requires care with the data and the results • Typical tests include: – Sorting – Filtering – Identifying duplicates – Extracting hi/low values • Excel does struggle to generate a stratification of the data file 1experience. new thinking
  12. 12. Are there alternatives? • Other alternatives include CCH’s Active Data (see www.cchsoftware.com.au) • Another alternative is ASAP Utilities (see www.asap-utilities.com) • ASAP Utilities is a great additional application for anyone working with IDEA and needing to manipulate data but only covers part of the functionality of IDEA. 1experience. new thinking
  13. 13. SOME SLIDES FROM IDEA’S DISTRIBUTOR FOLLOW 1experience. new thinking
  14. 14. 14 j IDEA allows you to import and export data from and into a multitude of formats, including files originating from large mainframe computers and accounting software.
  15. 15. 15 • IDEA protects the source data by allowing read-only access to the client's data to avoid any unwanted changes, and maintain data integrity. • IDEA allows you to import and export data into a multitude of formats, including files originating from large mainframe computers and accounting software. • IDEA allows you to easily manage your files and results and showing the source of your results • IDEA can read and process millions of records in seconds. There is no limit to the number of records that IDEA can process.
  16. 16. 16 IDEA creates a record of all changes made to a file (database) and maintains an audit trail or log of all operations carried out on a database, including the import and each audit test.
  17. 17. 17
  18. 18. 18 • Testing entering data controls • Data dictionary errors (undefined codes) • System weaknesses (Code 99, Free style fields)
  19. 19. 19 Audit Types: – Quantitive analysis – Testing efficiency and effectiveness (e.g., delays) – Identify specific transactions and trends (e.g., fraud) – Testing controls (e.g., electronic signature) – Compliance with regulation or policies – Analytical reviews (e.g., salary) – Matching information between different files
  20. 20. Fraud investigations  Purchasing, payroll, money laundering Financial and other analyses  Customer and other sales profiling  Performance measures (Delays)  Inventory – movement, pricing Security reviews  Network, phone, firewall logs Operations audits  Policy compliance  Value for Money System audits  Reliability of the data  System weakness (code 99, free style)
  21. 21. Fraud investigations Payroll  Ghost employees  Changes to salary  Changes to benefits  Overtime payments Purchasing  Favorable treatment of vendors  Transactions at or near spending authorities  Large purchases over several invoices  Phantom goods and phantom vendors Money Laundering  Applying Benford’s Law  Funds from various accounts  Accounts with a large average value of transactions.  Multiple accounts for particular individuals
  22. 22. HURDLES AND ROADBLOCKS 2experience. new thinking
  23. 23. IMHO the biggest are: People’s skill and experience in working with data Time required to complete analysis vs audit budgets 2experience. new thinking
  24. 24. Other roadblocks • Data access – client consent required and reluctance to give access to systems • Data access – requirements of privacy legislation • Data access – format of data (but has gotten better over the years) • A lack of time to properly plan the procedures 2experience. new thinking
  25. 25. Other hurdles • Lots of data laying around = litigation risk • Teams need good discipline in cleaning up client data files • We suggest trying to limit “CYA” files kept by junior staff 2experience. new thinking
  26. 26. BENEFITS AND WHEN TO USE IDEA 2experience. new thinking
  27. 27. ASA 500 – requirements for audit evidence • A52. … The means available to the auditor for selecting items for testing are: (a) selecting all items (100% testing) (b) selecting specific items (c) audit sampling 2experience. new thinking Testing All items Specific items Sampling
  28. 28. IDEA enables testing • Can test the entire population • Limits sampling risk • Still need to pay attention to accuracy and completeness of source data • One of the benefits of IDEA vs Excel is that IDEA doesn’t change the source data • IDEA also tracks the work performed with an audit trail 2experience. new thinking
  29. 29. KEY areas to use IDEA • Sampling (i.e., CMA / DUS / MUS ) • Stratification • Extraction of unusual items 2experience. new thinking
  30. 30. Client size for IDEA • Audit fee < $10,000 = probably not worth it, unless you are looking for something or want to perform a simple sample selection • Audit fee > $30,000 = starts to be useful for expenditure and payroll testing for selecting samples for testing 3experience. new thinking
  31. 31. Client industries for IDEA • Generally good for industries with large transaction volumes where transaction amounts are small dollar value • Would be useful for financial services and retail clients • Can be useful with other service and manufacturing clients 3experience. new thinking
  32. 32. Planning is key! • When you are going to use IDEA, plan for it • Discuss it with the client and get there buy in • Identify what tests will be performed with IDEA • Identify what data will be needed, in what format, at what date it is required, and who will provide it 3experience. new thinking
  33. 33. What do clients think? • We don’t usually go through the testing approach with them, but they love it when we have data that they don’t. • It is especially useful to have the data to back-up management letter comments (i.e., 56% of population x is outside your determined limits). 3experience. new thinking
  34. 34. Some questions . . . From: Sent: Wednesday, 23 April 2014 9:46 AM To: Matthew Green Cc: Subject: FW: IDEA Presentation My thoughts on what we want covered in the IDEA presentation: • What is IDEA? • What does IDEA do? • How does it work, ie where does it sit, on laptops or on a server? Can it be used off-site? What hardware is needed? • How do you organise client data to enable IDEA to use it? How difficult is that? Is there any software that it can’t use? Does client need an IT person to provide the data? What does client need to do to give us the data in the form needed? How much time does theclient need to do this? How do we get the data from the client’s system to ours? • What tests does IDEA do, ie does it come with a suite of tests already designed? Can you design more tests? How hard/ easy is that to do? Is it practical to design your own tests, or do you have to pay IDEA to do this? How often do you design your own tests? • How do you manage IDEA? ie do you have a few people who run it on all clients, or do all your team know how to do it? Is there a big set up cost? • I hear that it has a tie in with CaseWare? Is this a real benefit? How? • Why would you use IDEA rather than Excel? • Buying IDEA – do you buy a licence for the firm, or is it 1 licence per machine? Can you use licences on different machines? Is the licence per user or per machine? • Cost of IDEA. • How does it benefit the firm? ie do you save costs on an audit? Do you do a better audit? Are there tests that you do with IDEA that maybe were not done before and should have been? • What do clients say about your use of IDEA? Do they ask for some tests to be run for their own benefit? • What do your staff think about using IDEA? 3experience. new thinking
  35. 35. YOUR PRESENTERS 3experience. new thinking
  36. 36. Disclaimers This document contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice. We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid. We are under no obligation to update the matters considered in this document after its publication. © Hanrick Curran, April 2014 All rights reserved 3experience. new thinking
  37. 37. Topic Date Thank you www.hanrickcurran.com.au
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