Incorporating Data Analytics into Financial Statement Audit Process

Incorporating Data Analytics into Financial Statement Audit Process
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Incorporating Data Analytics into Financial Statement Audit Process
To: Office’s Managing Audit Partner
From: [Your Name]
Date: 5th November 2021
Subject: Incorporating Data Analytics into Financial Statement Audit Process
The audit office should incorporate data analytics to ensure that the available data is analyzed and interpreted well to make the right decision. Data analytics refers to the science and art of identifying data anomalies, discovering and analyzing data patterns, and extracting useful information from the given data.
One way that data analytics can improve the audit process is by assessing the company’s risk. Traditionally, it was difficult to assess potential risk areas in a company since the data recorded manually had to be extracted from physical files. In cases where the files go missing, it means that auditors will fail to have a clear picture of the risks they are likely to encounter (Ruia, 2021). Besides, the process of retrieving physical files is tedious and time-consuming. However, applying data analytics would make it easy to identify risk indicators by performing calculations using the stored data. One of the benefits of using data analytics is that auditors can use the unstructured technique, such as clustering to identify risky areas (“Audit, Assurance and Accounting Analytics,” n.d.). For example, they can examine the financial ratios of a firm and compare them to those of their business rivals. Moreover, auditors are in a position to use prediction models to assess the potential future outcomes.
The audit office can also use data analytics to test internal controls. Without data analytics, it can be challenging to identify individuals who engage in actions that are meant to degrade the company. For instance, since files are manually kept, auditors mig...