By Carl Mayes at AICPA blog on February 20, 2018
When planning an audit, how do you approach your preliminary analytics? Many auditors perform a variance analysis. They compare current year account balances to the prior year to identify any unexpected fluctuations. While this procedure often yields relevant insights, did you know performing audit data analytics (ADAs) can be even more effective at identifying potential problem areas? ADAs can be quick and painless, and you probably already have the tools on hand to perform them.
Let’s say you’re auditing a small manufacturing company. While gaining an understanding of the entity, you talk to management and learn that there were no major changes in operations or the business environment. As such, you expect widget and doodad sales will be consistent with the prior year within +/- 10%.
You do your variance analysis and see that the company had $2M in widget sales and $1M in doodad sales, which is consistent with the $1.95M in widget sales and $1.02M in doodad sales they did last year.
Using the variance analysis alone, you wouldn’t notice any unexpected fluctuations associated with these accounts. But some quick calculations and data visualization in Excel may give you greater insights to help you plan the audit.