Audit Trends 2018 Survey ResultsA global perspective on the current state ofaudit, challenges to overcome and opportunitiesto add further value to the audit function.

About the Audit Trends 2018 Survey

To gather a global perspective on trends in the audit industry, CaseWare Analytics reached out to auditors from around the world in December 2017, hearing their thoughts on issues ranging from how their audit teams will differ in 2018 to the most important objectives for an audit to the maturity level of their data analytics programs.

More than 800 audit-related professionals participated in the survey, providing meaningful insights into the current state of audit, challenges to overcome, and opportunities to add further value to the audit function. This report outlines the results of this survey, offering auditors key information on industry trends and forecasts.

More than 800 audit-related professionals participated in the survey, providing meaningful insights into the current state of audit, challenges to overcome, and opportunities to add further value to the audit function.

The respondents to our survey are from across the globe, working for large, medium and small organizations (or even independently) and with titles including Director of Internal Audit, Vice President of Internal Audit, Audit Specialist, IT Audit Manager, Inspector General, Senior Accountant and more.

In terms of experience,

• 2% of respondents had less than 1 year

• 23% had 1 to 5 years

• 21% had 5 to 10 years and

• 54% had more than 10 years of experience

About survey respondents

Respondents to our survey were mostly in agreement that technology will be at the forefront of the audit industry throughout 2018, with many noting the increasing need for staff to learn new technologies quickly and the expanding use of improved software tools. This, they expect, will in turn allow for more frequent audits as well as increased audit coverage.

Here are some observations and expectations respondents had for their audit teams in 2018 that are worth noting:

• Hiring more team members, often less experienced auditors who will require training

• Increasing emphasis on IT audits as well as on involving IT in audits

• More work being performed remotely

• Data quality and availability is often the most challenging barrier to overcome when trying to adopt data analytics

• Almost 80% of respondents think that data analytics will be important to auditing in 2018

• More than 40% are currently using data analysis on an ad-hoc basis

Highlights

Data quality and availability is often the most challenging barrier to overcome when trying to adopt data analytics

How will your audit team differ in 2018 from 2017?

A large number of respondents indicated that adding team members and increasing their use of data analytics are changes they expect to see in their audit teams throughout 2018.

Many, however, expressed concern that audits may take longer this year as more team members get up to speed with data analytics or new technology is implemented. Several noted that their teams will be shrinking this year, either due to budget constraints or team members retiring.

“The entire team plans to include a look at the underlying data in any audit project. This represents a continuation of our CAE's strategy to include a "data element" in every engagement.”Audit Trends Survey Respondent

An overwhelming majority of respondents indicated that adept use of data analytics will be the most important skill for auditors to have in 2018.

Respondents also reported that they believe auditors should have an understanding or be skilled in data mining, cybersecurity, Microsoft Office, their organization’s IT systems, scripting, critical thinking and emerging technologies, such as Artificial Intelligence, Cloud and Big Data.

What technology skills will be most important for auditors to have in 2018?

“Auditors are like internal consultants, so one of their most important skills is critical thinking—understanding of the root causes, knowing how to connect the dots to the facts to determine what it all means at a high level.”Lenny Block, CPA, CIAVice President of Internal Audit, Nasdaq Stock Market

Survey results made it clear that IT will increasingly be called on to participate in audits, or for there to be a dedicated IT auditor on the team. Respondents noted that having an IT specialist who has some knowledge of everyone in the organization is valuable because it puts them in the position of being able to be aware of any changes in behavior. As our dependence on IT systems grows, so too will the need for an IT team member who can determine that the access to these systems is properly defined and segregated—as well as configured and implemented appropriately.

How important is it for an audit team to include a member from IT?

68% of respondents believe that including an IT specialist in the audit team is moderately important, important or very important.

Respondents were slightly divided on the need for a CFE as a member of their audit teams, with 41% feeling it is important or very important and 59% thinking it’s not at all important to just moderately important. Larger organizations especially may benefit from a CFE’s expertise in fraud detection, as well as their investigative skills should a potential case of fraud be identified.

How important is it for an audit team to include a Certified Fraud Examiner?

41% felt it was important or very important to have a CFE on an audit team while 59% thought it was not at all important to just moderately important

Unsurprisingly, an overwhelming majority of respondents felt that data analytics will play a key role in the audit programs of 2018, with almost 80% feeling it will be important to very important. Specifically of note is that no one surveyed felt that data analytics would be not at all important, and only approximately 10% considered it slightly important or moderately important.

This further solidifies the role that most auditors feel data analytics will play in the coming year, and how important it will be for those falling behind to acquire data analysis software, participate in training, and become proficient in using the tools.

How important do you think data analytics will be to audit programs in 2018?

“Data analytics will play an increasingly important role in audit teams, mainly because auditors cannot function effectively and efficiently in an increasingly technically sophisticated environment without doing so. They have no choice. They cannot be proficient or be sure of accuracy in the audit if they are not deploying more audit analytics, specifically tools like IDEA or other types of audit automation software.” Deniz Appelbaum, PhD, Assistant Professor of Accounting and Finance, Montclair State University

In overwhelming numbers, respondents recognized the value that data analytics adds to a business, with more than 90% indicating it is important or very important.

Only 10% felt that it was moderately important (7%), slightly important (2%) and just 1% felt it was not important. With auditors always striving to add value to their organization, data analytics is clearly considered key to their success in doing so.

How important is data analytics in helping IA add value to the business?

“We need to exceed expectations in order to add value. Being able to analyze all of the data lets us do that.” Aaron Boor, IT Audit and Project Automation Manager, Internal Audit, Donegal Insurance Group

With 30 years of experience as a Senior Computer Audit Specialist at D'Arcangelo & Co. LLP, Fred Lyons is an expert in the audit field. Here’s what he shared with CaseWare Analytics recently:

Q: What is the most important process an audit team needs in order to be successful?

A: I think it’s most important to establish a repeatable audit routine. Consistently applying the same techniques over and over again makes each audit more efficient and thorough.

Q: What are some key strategies your team follows?

A: The first is to always ensure that the data is complete and accurate. If the data is wrong, your conclusions will be wrong. When you receive a data file, validate it by looking at the control totals, date cut-offs, etc. You can also use the Field Statistics feature in a data analysis tool. Validating the data file is a habit you have to get into and that all new auditors need to adopt.

I also think it’s important to not be tempted to only drill down into data where you expect to see results. Look at the data holistically so you can

understand it and maybe find something unexpected. If we only chase our expectations, we won’t find anything unusual.

Q: Can you give an example of a time when you found something unexpected in the data?

A: Definitely. When we first started learning how to use IDEA, we found a $10 million difference between the total printed on the report and the data supporting it. That was just the tip of the iceberg! The finding prompted an investigation which later uncovered a fraud scheme. Discovering the unmatched data was key to exposing the fraud.

Q: Why do you use data analysis software?

A: Data analysis tools offer the repeatable audit routines that help create efficiencies. IDEA is logically structured, easy to learn and it widens our coverage because we can analyze the entire data population.

Another reason we use data analysis software is that it makes it easy for us to test and adjust our hypotheses when developing an audit routine. The fact that the source data is not altered is essential for us.

Auditor spotlight: Key strategies for audit

CPA (Chartered Professional Accountants) Canada conducted their own survey of accountant and audit professionals, in part to determine how data analytics tools are being used throughout the audit process.

As Exhibit 4 outlines, most firms fail to use data analytics in the pre-engagement phase, choosing instead to focus their data analytics efforts equally across the planning/risk assessment phase, substantive procedures, and in determining their overall audit conclusions.

CPA Canada – Use of data analytics by audit phase

Overall, 63% of auditors from large firms had used audit data analytics (ADAs), compared to 39% of auditors from small/medium-sized firms.Audit Data Analytics Alert, CPA Canada

When it comes to the importance of various data analytics objectives, including reducing audit costs, identifying fraud and additional insights, and increasing audit coverage, numbers were split quite evenly. Of these factors, reducing audit costs was ranked least important. This could, perhaps, signify that auditors expect management to understand that the value of their work is more important than the cost of it.

How important are these data analytics objectives?

“I think that the consideration of fraud will become more important in audit’s work going forward. For instance, as a part of the planning phase of our audits we are trying to identify any major fraud risks and/or schemes that could be applicable for the area under review.”Bistra Dimitrova, MBA, CIA, CRMAManager, Internal Audit, Kronos Inc.

How important are each of these enablers to incorporating data analytics?

Respondents were almost unanimous that several factors are almost equally important to an audit team incorporating data analytics (those factors being a data visualization tool, training, data and analytics-enabled internal audit methodology, an analysis tool and a set of routines).

The most noted enabler, however, is training, a concern frequently referenced in discussions around how to effectively implement a data analytics program. While purchasing a tool is not necessarily a significant obstacle, acquiring and retaining the knowledge to use the software effectively continues to be a challenge for auditors.

“Once designed properly, the data analytics audit program can be executed multiple times. This saves a lot of time in areas that are subject to regular reviews and do not change often.”Bistra Dimitrova, MBA, CIA, CRMAManager, Internal Audit, Kronos Inc.

How difficult is it to overcome these barriers to incorporating data analytics?

When it comes to overcoming various barriers to incorporating data analytics in an audit program—barriers such as the perceived benefits and management buy-in, skilled resources, ability to translate data into insights, funding, and data quality and availability—only a small percentage of survey respondents felt that any of them were not difficult to overcome.

For each of these barriers, it was clear that most felt they were moderately to extremely difficult to overcome, with data quality and availability being noted as the most challenging to get past.

Auditors continue to have problems with data—not only in obtaining it but also in determining what exactly is the right data and how to secure management buy-in when requesting the data. This challenge, unfortunately, is a trend that our respondents recognize will continue throughout 2018.

CaseWare Analytics met with Erin Baker, Data Analytics Program Manager for the University of Texas System Audit Office, and discussed her thoughts on data analytics. Here are some highlights from our conversation.

Q: How much of a role does data analytics play in your position at the System?

A: Our activities include everything from assisting other audit departments on how to use data

analytics in upcoming audits, to performing data analysis in specific areas of a project and then delivering those results for further investigation. We also develop customized analysis tools and scripts, and act as consultants by providing guidance on how other teams can grow their use of data analytics.

Q: What do you most enjoy about teaching others how to use data analytics software?

A: I find it satisfying to see my students get excited about CaseWare IDEA’s capabilities and how it can benefit them. Recently I trained a department that was struggling to compare two data sets with more than 300 different

numeric fields from two different years. Their electronic reports indicated that there was an anomaly, but the description of the issue was extremely generic and diagnosing the source of the problem was complicated and time consuming.

With just a few clicks in IDEA, we were able to quickly identify all the anomalies and reduce the time needed to complete the project from days to hours—or even minutes.

Q: What advice do you give to those considering a data analytics tool?

A: Have realistic expectations! Even though IDEA is very easy to use, you have to take the time to learn how to use the software. You also have to understand the meaning of your data and be able to look at it in different ways. You rarely receive your data in a format that works for you, so be prepared to convert the data into a more usable format.

Start with some simple analysis to get a few ‘easy wins’ and learn about the tool’s capabilities. But don’t limit yourself! As you get more comfortable with the software, you will discover many things about what the data is saying to you.

Auditor Spotlight: Getting started with data analytics

Journal of Accountancy: How skills are acquired

A survey conducted by the Journal of Accountancy reinforced that the most common and important ways for audit professionals to acquire analytics skills is with training, with more than 80% indicating this is how they gain skill.

Approximately 40% of respondents also listed mentorship, outside courses/events, working with a consultant, and tuition reimbursement as methods used to acquire skill with analytics.

“For incoming auditors or those studying to be auditors, there’s some catching up that has to be made in education and coursework. Data analytics training really should be offered in the underlying coursework at the undergraduate level, not just in Master’s programs.”Deniz Appelbaum, PhD, Assistant Professor of Accounting and Finance, Montclair State University

“Producing analytics starts with understanding the business objective ("What are the key questions that you expect the analysis to answer?") and identifying and obtaining relevant internal and external data sources to support the analysis.”Journal of Accountancy

How effective are you at leveraging data analytics in order to add value to your job?

Based on the results from this question on the survey, many auditors feel that their data analytics skills have room for improvement.

Only 7% felt they are outstanding in leveraging data analytics to add value to their role; 30% are very effective; 27% admit they need improvement; and another 2% feel they are inadequate. This further solidifies the need for increased training opportunities, including for more in-depth and periodical training to keep skills fresh, up-to-date and effective.

“Data analytics will be incorporated into every stage of the audit process, from our audit plans where we lay out everything we’re going to do for the year to actually deciding how to prioritize the audit plan, all the way down to test work that we do in the audit plan.”Robert Berry, CPAExecutive Director of Internal Audit, University of South Alabama

How mature is your use of data analysis software in your audits? (Select all applicable answers)

As noted by this chart, most auditors are using data analysis software for ad-hoc use or manual testing in their audits.

As the use of data analytics continues to become more essential and prolific over the coming years, we have and will continue to see a growing number of auditors use data analysis tools for continuous auditing and continuous monitoring for more complete and current coverage of internal controls.

“Data analytics has been a big part of audit teams in 2017 and will play an even bigger role in 2018. Each year we expect more data to be available, therefore analytics just becomes proportionally as important to keep up with the data that is out there.”Lenny Block, CPA, CIAVice President of Internal Audit, Nasdaq Stock Market

In how many audits do you leverage data analytics?

A minority of survey respondents leverage data analytics in almost all of their audits, with only 14% saying they use it in 80-100% of the audits they conduct. Almost half of those surveyed use data analytics in 40% or less of their audits.

Given the ever-increasing volume of data and extra demands placed on auditors, it’s expected that auditors will utilize data analytics in an increasing number of audits over the course of 2018.

“I have trouble envisioning any audit that doesn’t have a data analytics component. So, I expect to see a drive to increase the use of data analytics, which will require either more expertise among audit staff or an increasing use of analysts.”Scott Jones, PE, CIA, CRMAPresident and CEO, Key Performance Initiatives Inc.

This survey of more than 800 audit-related professionals indicates a variety of trends expected to roll out in 2018, including the hiring of more personnel and an increasing importance on having IT involved in audits—potentially in a range of capacities.

Also highlighted was the undeniable need to incorporate data analytics into audits despite the potential barriers and challenges. Regardless of these concerns around data analytics, the results of our survey have clearly demonstrated that it is considered an irreplaceable part of audits going forward.

Unlock the Power Within Your DataCaseWare Analytics is home to IDEA® Data Analysis software, which allows auditors, analysts and finance professionals to assess risk, gather evidence, uncover trends, and provide the intelligence needed to make informed decisions. IDEA is a comprehensive, powerful and easy-to-use analytics tool that can quickly import data from virtually any source, analyze 100% of the data, protect the integrity of data and discover and visualize patterns, trends and outliers. For more information on CaseWare IDEA, visit casewareanalytics.com or email connect@caseware.com.

Going forward into 2018

“(With IDEA), I can analyze records with the click of a button rather than spending days or weeks manually sifting through data. Add in the ability to hone in on anomalies and establish reoccurring analyses and it was clear that this tool was a game-changer. ”

Aaron Boor, IT Audit and Project Automation ManagerInternal Audit, Donegal Insurance Group