Transcript Title - Rutgers University

Assurance & Advisory
Business Services
More Than Just an
Audit…
Why Not?
Eckardt Kriel
E
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AGENDA
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Current State Overview
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CAATs
Brief Description of our progress in E&Y - Canada
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EY3D
Continuous Auditing
Look Into the Future
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Current State
The following is an extract from the
Audit Methodology.
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It defines, largely, the current state of
data analytics within the assurance/attest
function - but what is lacking is that it
does not address the future state. Also
it assumes the auditor has a choice.
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However the future is going to be VERY
different for the auditor of tomorrow.
C o n tro l R is k
Inherent Risk
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LEVELS OF DETECT RISK ASSURANCE FROM ANALYTICS
The levels of detect risk assurance we obtain, by tool, at the activities
leading to Risk Assessments and Customised Solutions are indicated
on the “pyramid” diagram below. The exact level of assurance gained
will be a matter of professional judgment and supporting
documentation will be key in this area.
M in im u m
M o d e ra te
M a x im u m
Low er
M in im a l
Low
M o d e ra te
H ig h e r
Low
M o d e ra te
H ig h
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Current State contd...
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Traditional Audit CAATs can be characterized as follows
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Data Capture
Extract & sample
Sort
Summarize
Footing
Stratify
Sequence testing
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Recalculate
Aging
Duplicate Testing
Graphs - histograms
Merge, join & split
Confirmations
Statistics
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Business Drivers for Change
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As eCommerce and other initiatives advance many established business practices are
being shattered.
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In this world of the future, economic events will be captured, measured, recognised and
reported electronically (read as “instantaneously”), without any paper-based trail.
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Data volumes increase exponentially, data being stored in disparate data stores and in a
variety of different forms.
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The convergence of electronic processes toward real-time financial management will drive
traditional audit methods to be displaced by ‘smart’ electronic analytics and continuous
auditing techniques.
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Auditors are facing increased pressure on fees and demands to increase value.
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Evolution of Computing - Data Characteristics
Mainframe
Client Server
Virtual
LAN
Monitor
Technology
Modem
Oracle
SAP
BAAN
IBM
Compatible
INTER/INTRANET
Mainframe
eCOMMERCE
EXTRANET
IBM
Compatible
WAN
Data Disbursement Increases
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Monthly Transaction-based Processing
Tape/DASD based Data Stores
Sequential Files
PC Introduction 1978
Restricted Central Storage
1970
Data Volume Increases
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1980
Daily Update Transaction-based Processing
Relational Databases Technology
Multiple Distributed Databases
Diverse/Portable Technologies
Restricted Remote Storage and Access
Data Variety Increases
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Instantaneous Updates
Object Oriented Database Technology
Data Made up of Sound, Images
Increased Storage Methods, Types
Differing Standards
1990
2000
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Future State
In addressing the needs of the auditor in the future state, E&Y has invested in the
development of tools like EY3D which have the potential of playing an
important role of gaining insight and adding value :
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Tests of Controls
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Substantive Tests 
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System Conversion
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Application Reviews
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Unique Value Add Services
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EY3DTM
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Features
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A distinguishing feature of EY3DTM is that we recognize the power of analytical
tools to detect the conditions associated with maturity of certain business risks,
including fraud.
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We have developed the evidence profile for some common fraud risks – e.g., in the
Payment Stream Analysis module we have identified payments to fictitious suppliers,
reprocessing existing invoices, expense account abuse, as risks that mature frequently
and are capable of detection by data analysis.
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System Conversion
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The EY3D analysis can be run before a conversion to give a ‘diagnostic’ or current
state analysis to identify current problems in the processes and/or data that should
not be converted to the new system.
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When performing a post-conversion review the auditor can increase his coverage
and effectiveness by utilizing tools like EY3D to detect whether problems arose
during a conversion.
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Application Reviews
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Similarly, EY3D can play a powerful role in diagnosing business process
issues, including ERP systems like SAP.
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As a complement to his Application Control Review work the auditor can
look to the results of EY3D to obtain hard evidence of issues arising out of
the data stream analysis. As we configure EY3D for particular ERP systems
the auditor can then pinpoint the source of various problems in say, a
particular table or configuration setting, adding to the value of his review.
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So Where’s the Value?
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Audit Role: 100% transaction testing- no samples. Look to data for source of evidence.
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Business Process Improvements:
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Fictitious suppliers on master file, re-processing supplier invoices.
Benchmarking/KPI’s:
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Duplicate payments to suppliers, overpayments of GST/PST, employees abusing expense accounts.
Irregular Activity:
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Cash Management; lost discounts/interest paid, payments to suppliers too early/ too late.
supplier spend analysis.
Vendor master file analysis.
Cash Recovery:
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Payments to terminated employees.
Payments to inactive, invalid vendors.
Unusual payments.
Check payment authorization limit testing.
No. of days to process invoice payments, no. of invoices processed per month.
Risk Management:
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Canadian Soc Insurance Number analysis – invalid SIN nos., immigrant status.
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Benefits
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High impact on the bottom line.
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Productivity gains through controlled management of risk .
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Clean-up of vendor master file.
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Demonstrate a pro-active approach to fraud detection and
management.
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Opportunities to recover cash from vendors which have been paid more
than once.
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Opportunities to recover cash from employees who have abused the
system.
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Opportunities to improve future cash flow by preventing further cash
leakage.
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Opportunities to negotiate better terms from suppliers.
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Growth of stakeholder confidence in the stewardship function.
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Why Not Go Even Further?
In addition to running this tool periodically we can run it continuously.
The tools exist today to make this viable. Example:
 AuditMaster
 Inea,
 etc
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Continuous Auditing or Real Time Assurance
An integral part of any Audit vision is to provide value to clients through the
continuous flow of ideas and early warnings. To achieve this vision, the concept of
Continuous Auditing can be the enabler through:
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more frequent interaction with the client;
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taking a proactive business process view of the client;
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the timely consideration of industry knowledge; and
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accessing clients’ information electronically.
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Continuous Auditing or Real Time Assurance
A u d it G u id a n c e
In d u s try a u d it
c o -o rd in a tio n
B e n c h m a rk s
D a ta
m odel
C lie n t
in fo rm a tio n
S ch ed u led
d a ta
co llectio n
S ta n d a rd
a n a ly tic s
D a ta
w a reh o u se
B e n c h m a rk s
A n a ly tics
A u d it
Engagem ent
S ta n d a rd
& ad hoc
re p o rts
E x c e p tio n
a n d h ig h lig h ts
re p o rtin g
C o m m u n ica tio n
R e a l T im e A s s u ra n c e to o ls
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Key Benefits
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standard models are built for each industry, which define the data to be captured and provide a set
of tools to investigate the data in the context of business and financial statement risks;
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data capture is provided on an automatically scheduled basis, or at least with the minimum of
human intervention, thus minimizing the need for technical support and enabling up-to-date data
to be captured frequently;
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the use of standard models facilitates the gathering and sharing of benchmark data across an
industry or segment;
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the standard tools provided include a powerful multi-dimensional technique for investigating data
which neither restricts the audit team to a standard set of “canned” procedures, nor requires them
to write numerous separate ad-hoc query programs to satisfy their needs. Thus the team can
interact with the data in real time, investigating issues as soon as they identify them.
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ABC Life Casualty - Real Time Assurance
ABC LIFE CASUALTY
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