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FRC publishes the results of its thematic review into the use of data analytics in the audit of financial statements

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01 Feb 2017

The Financial Reporting Council (FRC) has published the results of its thematic review into the use of data analytics in the audit of financial statements. The FRC believes that the review “will be valuable to audit firms in developing or enhancing their use of data analytic tools in the audit, contributing to their own processes of continuous improvement to enhance audit quality”.

The overall objective in undertaking the thematic review, which was undertaken by the FRC’s Audit Quality Review (AQR) team, was to enable the FRC to understand how advanced audit firms were in developing and using data analytics in the audit of financial statements.  The use of Audit Data Analytics (ADA) was reviewed at the six largest UK audit firms.    

The review identifies that the use of data analytics in the audit is not yet widespread but that the use of ADA can enhance audit quality.  Indeed all firms cited audit quality as the driver for implementation of ADA.  

The report identifies a number of ways that ADA can contribute to audit quality including: 

  • deepening the auditor’s understanding of the entity;
  • facilitating the focus of audit testing on the areas of highest risk through stratification of large populations;
  • aiding the exercise of professional scepticism;
  • improving consistency and central oversight of group audits;
  • enabling the auditor to perform tests on large or complex datasets where a manual approach would not be feasible;
  • improving audit efficiency;
  • identifying instances of fraud; and
  • enhancing communications with audit committees. 

Additionally the report gives examples of good practice identified by the FRC during the course of its review including: 

  • enabling audit staff to build experience and confidence in using a specific audit data analytics tool through a structured roll-out programme.
  • using data analytics for the first time at an interim audit date to improve the prospect of obtaining robust audit evidence at the financial year end, particularly in a first year audit.
  • improving the effectiveness and efficiency of the extraction of entity data into audit data analytics tools by using dedicated specialist staff and/or dedicated software.
  • using data analytic techniques to improve oversight and consistency of multiple auditors contributing to group audit audits where organisations have global accounting systems. 

The review follows other thematic reviews conducted by the FRC.  Thematic reviews analyse further aspects of auditing which are not considered in detail during the FRC’s routine audit inspections of individual firms.  Thematic reviews seek to identify both good practice and areas of common weakness among audit firms. 

The press release and full thematic review are available on the FRC website.

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