Lesson 17 Using Audit Data Analytics Effectively

• What do auditors do when they perform ADA?


  They dig and mine to find information to support the audit opinion.
• Why is it important for auditors to ensure they are "digging in the right place" before performing analyses?

  To ensure they are using relevant data for accurate audit conclusions.
• What is the three-step overall approach to ADA?

  1. Identify the audit question being addressed.
  2. Assess the availability and reliability of relevant data.
  3. Determine the best tool or approach to analytics for the question.

  
• What is the process of correcting inconsistencies in data called?

  Data cleansing.
• What is "dirty data" in the context of ADA?

  Data that requires cleansing before it can be used for ADA.
• How does inherent risk affect the reliability of data?

  Low inherent risk indicates a lower chance of material misstatement in the data.
• What does low control risk imply for auditors regarding data reliability?

  It means auditors need to test the inventory account to ensure the reliability of the data.
• What are ITGC in the context of data reliability?

  Controls that ensure the integrity of data files in the information system.
• What are some risks that can affect the reliability of data production?

  Risks include compromised external data sources and unreliable data production processes.
• How do auditors use ADA to assess risk?

  • Identifies areas of risk at various stages of the audit.
  • Used for testing controls, substantive testing, and analytical procedures.
  • Helps in identifying risks at higher and lower levels of detail.

  
• What are notable items in the context of ADA?

  Risky items identified by ADA that indicate unknown risks or higher risks than expected.
• What characteristics do notable items usually have?

  They indicate unknown risks and provide insights for designing substantive audit procedures.
• How do auditors examine causes of notable items when assessing risk?

  • Ask management.
  • Consult the audit client’s personnel outside of financial reporting.
  • Engage knowledgeable parties outside the audit client.
• How is using ADA for substantive testing different from using it for risk assessment?

  Substantive testing involves a more hands-on identification of issues to obtain evidence supporting or contradicting assertions.
• What is the three-step process for designing an ADA procedure for substantive tests?

  1. Identify the audit question (audit objective).
  2. Identify relevant data and ensure its reliability.
  3. Identify the best tool or approach for the available data.

  
• What is the difference between a test of details and substantive analytical procedures?

  A test of details examines specific amounts, while substantive analytical procedures examine relationships among data.
• What assertion does using ADA as a substantive analytical procedure assess regarding sales?

  It assesses the occurrence assertion related to sales.
• What do auditors seek when using ADA to test details of notable items?

  Evidence supporting or refuting the amounts related to each notable item.