ac423 chapter 7
Steps of performing an ADA
1. Plan the ADA 2. Access and prepare the data for the ADA 3. Consider the relevance and reliability of data used 4. Perform the ADA 5. Evaluate the results and conclude whether the purpose and specific objectives of performing the ADA have been achieved.
Regression analysis
A statistical process that involves estimating a prediction equation that expresses an item of interest (y or dependent variable) in terms of other data fields (the x or independent variables).
Notable item
An item identified from the population being analyzed that has one or more characteristics that, for a relevant assertion, may do the following: (a) be indicative of a risk of material misstatement (b) provide information useful in designing or tailoring procedures to address risks of material misstatement.
2. Access and prepare the data for the ADA - Qs to ask
Is the data complete? -Does the data agree with the general ledger and the financial statements? -The auditor should check the numerical continuity of the data. Are there missing numbers (e.g., missing numbers in the sequence of invoices)? ---------------------------------------------- Does the data need to be cleaned? -Are there fields with missing data? -Is the data appropriately and consistently formatted?
False positives
Items incorrectly identified as notable items.
Cluster analysis
The process of discovering groups (clusters) of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar.
Matching information in key data fields
The process whereby the auditor uses audit data analytics to search for key characteristics that may exist in several different databases.
Visualization
The representation of a data set, or key information, as a chart or other image to explain and communicate findings.
Audit data analytics (ADA)
The science and art of discovering and analyzing patterns, identifying anomalies, and extracting other useful information in data underlying or related to the subject matter of an audit through analysis, modeling, and visualization for planning and performing the audit.
1. Plan the ADA - Questions to ask
What financial statement items, accounts, or disclosures and related assertions are being audited? What is the overall purpose of the ADA application and how will it contribute to the balance of the audit? For example, is ADA being used as a risk assessment procedure or as a substantive test? What is the audit population being analyzed or tested using ADA? The auditor should also consider the relevance of the data to the audit assertion(s) being tested, and the availability and reliability of the data. What ADA tool is best suited for the audit purpose? Here the auditor selects the techniques, tools, graphics, tables or other analytical techniques to be used.