Chapter 9: Data Analytics in Accounting
How could audit data standards make external auditors' work more efficient?
Before an audit, external auditors ask the company being audited for certain information. In the past, they have generally been flexible as to how the data is extracted and formatted for their use. The external auditors then have to spend time doing Extract, Transform and Load to get it ready for analysis and testing. If both the company being audited and the external auditor are able to communicate electronically using Audit Data Standards (ADS), then the transfer of information will be relatively effortless and error free. The time that was used to extract and reformat the data can now be used for the arguably more important testing and analysis performed by external auditors.
How does data analytics relate to Big Data? Why should accountants incorporate data analytics into their work?
Big Data is defined as datasets that are too large and complex for businesses' existing systems to handle utilizing their traditional capabilities to capture, store, manage, and analyze these datasets while Data Analytics is thescience of examining raw data (now often Big Data), removing excess noise from the dataset, and organizing the data with the purpose of drawing conclusions for decision making. Big Data seems to highlight the size of the data, that it is simply so big and unmanageable, but Data Analytics uses context to figure out what is needed to draw conclusions to be useful in decision making. Specifically, Data Analytics provides a way to search through large and unstructured data to identify unknown patterns or relationships. As an example, Big Data might collect all tweets since the beginning of Twitter to answer questions. Data Analysis might take that data, extract the appropriate information to answer a question and then address questions like: • What do tweeters think about Christmas? • How do investors (those that are on Twitter) respond to a share buyback? • Do tweeters retweet earnings announcement information to others? Accountants may incorporate data analytics into their work by using it to assess estimates, predict goodwill writedowns, predict audit issues and outcomes, and as a basis for managerial decision making.
What is an example of the way data analytics might be used in an airline setting to maximize revenue of selling to business and casual travelers?
Data Analytics might be used in an airline setting to maximize revenue of selling to business and casual travelers in many ways. For example, data analytics might define business travelers by the time before travel that a ticket is purchased (say in the final week before travel is made) and define casual travelers also by the time before travel (say before the final week before travel is made). Data Analytics could then look at questions like baggage charges and giving one rate for those who purchase baggage more than a week ahead of time versus those who purchase baggage less than a week ahead of time.
Why is it important to have software vendors (such as SAP, Oracle, etcO use the audit data standards)
For software that companies and/or audit firms consistently use (like SAP), it would be very helpful to have an option to output information in conformance with Audit Data Standards. That would make it a relatively effortless exercise to export or import data from an external party. If the software vendors know these standards well in advance, they can make it much easier for their customers and be a highly value-added option to the software the vendors provide.
Why should companies have strong policies in place to protect personally identifying information?
In an information age, the loss of identity is a big concern to most individuals. Privacy is important making it important for firms to set standards and do their utmost to protect personal identifying information. The DATA law also suggests that the country as a whole sees this as an important issue for its citizens to have a law that protects them and penalizes companies that are negligent in their duties to protect such information.
