Question

Data Analysis: Risk Assessment Stage: Explain how and why data analysis is used at the risk assessment stage of the audit process.  Data Analysis: Determination of Sampling Method and Audit Universe: Explain how data analysis is used in the determination of sampling method and audit universe.

Answer 1

Ans. Data Analysis:Risk Assessment Stage

Data analysis provides auditor an opportunity to review and analyze the data to a larger extent.Because of this they will get whole understanding of an entity's operation and risk including thereof. Also data analysis will enhance the potential of detecting frauds and material misstatement and at the same time communicating these to those charged with governance.

Auditor should use data analysis in performing risk assessment procedure at various stages as planning,performing and evaluating by following these steps as follows:

First of all Plan data analysis and determine the objectives and overall purpose of data analysis to identify all the risk associated.

Then access and prepare data and consider the relevance and reliability of the source and data used.

After that evaluate the results and conclude on whether the purpose and specific objectives of performing the data analysis have been achieved or not.

If the objectives are achieved then by using data analysis in performing risk assessment procedure may result in identification of one or more items that may be problematic.

And to address these auditor has to perform data analysis to identify the risk of material misstatement and evaluate whether it is appropriately planned and performed .

If the analysis is appropriate make groups or filter the items identified and make necessary action to minimize the risk.

There are so many benefits to use data analysis that's why it is used at risk assessment stage as

It increases efficiency and effectiveness of audit procedures

It provides greater assurance as it reduces human errors.

It provides greater audit coverage and focuses on strategic risk by moving away from the routine tasks

Data Analysis: Determination of Sampling Method and Audit Universe:

Audit is performed to determine whether processes contain data errors or whether financial reports contain misstatements. Data Analysis techniques always been used to test random data sets or target specific data if an auditor feels an internal control process is at risk.

The use of data analysis enables auditors to test 100% of populations. Auditors use different types of data analysis to undertake a variety of functions.Fraud analysis and continuous auditing are examples of areas where the total population is often tested and then outliers are subjected to more detailed testing.

In audit functions where there is currently no or limited use of data analytics auditors will test samples of transactions. Only very rarely would they examine every transaction in the period audited, i.e. if fraud or other financial irregularity was suspected then audit will test 100% of transactions. For example, every payslip issued, every invoice, every stock item held.

Data Analysis allows for whole population testing instead of random or judgmental sampling, as well as enabling continuous auditing so that business can pick up on emerging trends and be more aware with the risk monitoring.