Australasian Chartered Accountants Training Group - Using IDEA for auditing client data

www.hanrickcurran.com.au

IDEA for ACATGUnderstanding IDEA and applying its data analysis

capability for audit engagements

April 2014

Today’s Agenda

• Understanding data

• What is IDEA

• How and when do we use IDEA

• Some general comments on IDEA

• Q&A with experienced users

2experience. new thinking

Data mining & big data

• Google data mining and you get 97,500,000 results• Google big data and you get 774,000,000 results• The explosion of data and its use is not going to go away• Auditors need tools to respond to the massive increase in

data that clients can make available• IDEA is one tool to make this happen


McNamara – The Fog of War

•Empathize with your enemy•Rationality will not save us•There's something beyond one's self•Maximize efficiency•Proportionality should be a guideline in war•Get the data

•Belief and seeing are often both wrong•Be prepared to re-examine your reasoning•In order to do good, you may have to engage in evil•Never say never•You can't change human nature


Eleven Lessons from the Life of Robert S. McNamaraThese topics were selected by Errol Morris and highlighted in the film; they were not selected by McNamara.

IDEA provides a window into the data, enabling decisions and analysis

What is IDEA

• IDEA is a data analysis application (tool) • IDEA can be run on a laptop (microcomputer) or be loaded

onto a clients network/servers/mainframe computers (subject to licensing)

• IDEA is designed to analyse data sets (i.e., rows and columns of data)


Where can you use IDEA

• If IDEA is loaded to a laptop, you can work from the clients premises.

• The advantage of this is that as issues are identified, they can be discussed with the client.

• More commonly, the analysis is performed as part of the audit field work.


What hardware is needed for IDEA

• Generally any reasonably modern laptop should be able to handle IDEA

• The better the machine, the better the analysis performance• When I as a junior auditor, sometimes I would set up tests and

then let them run overnight . . . (but I think computer performance has improved since then)


What does it cost $$$$$

• Not sure . . .

• In my experience, the biggest costs are:

training and time to use


Are there alternatives? YES

• Think about the limitations of excel . . .


Excel’s data limits

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experience. new thinking

And before that, probably only 7,000 rows in earlier Excel and Lotus applications.

Are there alternatives? Excel

• With 1,000,000 million rows, probably most of our analysis can be done in Excel.

• Analysis in Excel using the native functions is a possibility, but requires care with the data and the results

• Typical tests include:– Sorting– Filtering– Identifying duplicates– Extracting hi/low values

• Excel does struggle to generate a stratification of the data file

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Are there alternatives?

• Other alternatives include CCH’s Active Data(see www.cchsoftware.com.au)

• Another alternative is ASAP Utilities(see www.asap-utilities.com)

• ASAP Utilities is a great additional application for anyone working with IDEA and needing to manipulate data but only covers part of the functionality of IDEA.

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http://www.cchsoftware.com.au/

http://www.asap-utilities.com/

SOME SLIDES FROM IDEA’S DISTRIBUTOR FOLLOW

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WHY USE IDEA?

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IDEA allows you to import and export data from and into a multitude of formats, including files originating from large mainframe computers and accounting software.

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WHY USE IDEA?

• IDEA protects the source data by allowing read-only access to the client's data to avoid any unwanted changes, and maintain data integrity.

• IDEA allows you to import and export data into a multitude of formats, including files originating from large mainframe computers and accounting software.

• IDEA allows you to easily manage your files and results and showing the source of your results

• IDEA can read and process millions of records in seconds. There is no limit to the number of records that IDEA can process.

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IDEA creates a record of all changes made to a file (database) and maintains an audit trail or log of all operations carried out on a database, including the import and each audit test.

WHY USE IDEA?

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THE IDEA PROCESS

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PRE-ENGAGEMENT REVIEW

• Testing entering data controls• Data dictionary errors (undefined codes)• System weaknesses (Code 99, Free style fields)

Pre-Engagement

Availability of the data

Understanding the data

Reliability of the data

Reconciling the data

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AUDIT TYPES USING IDEA

Audit Types:– Quantitive analysis– Testing efficiency and effectiveness (e.g., delays)– Identify specific transactions and trends (e.g., fraud)– Testing controls (e.g., electronic signature)– Compliance with regulation or policies– Analytical reviews (e.g., salary)– Matching information between different files

WHERE CAN YOU USE IDEA?Fraud investigations

Purchasing, payroll, money laundering

Financial and other analyses Customer and other sales profiling Performance measures (Delays) Inventory – movement, pricing

Security reviews Network, phone, firewall logs

Operations audits Policy compliance Value for Money

System audits Reliability of the data System weakness (code 99, free style)

INDUSTRY RELATED ANALYTICSFraud investigations

Payroll Ghost employees Changes to salary Changes to benefits Overtime payments

Purchasing Favorable treatment of vendors Transactions at or near spending authorities Large purchases over several invoices Phantom goods and phantom vendors

Money Laundering Applying Benford’s Law Funds from various accounts Accounts with a large average value of transactions. Multiple accounts for particular individuals

HURDLES AND ROADBLOCKS

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IMHO the biggest are:

People’s skill and experience in working with data

Time required to complete analysis vs audit budgets

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Other roadblocks

• Data access – client consent required and reluctance to give access to systems

• Data access – requirements of privacy legislation• Data access – format of data

(but has gotten better over the years)• A lack of time to properly plan the procedures

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Other hurdles

• Lots of data laying around = litigation risk• Teams need good discipline in cleaning up client data files• We suggest trying to limit “CYA” files kept by junior staff

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BENEFITS AND WHEN TO USE IDEA

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ASA 500 – requirements for audit evidence

• A52. … The means available to the auditor for selecting items for testing are:(a) selecting all items (100% testing)(b) selecting specific items(c) audit sampling

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Testi

ng

All items

Specific items

Sampling

IDEA enables testing

• Can test the entire population• Limits sampling risk• Still need to pay attention to accuracy and completeness of

source data

• One of the benefits of IDEA vs Excel is that IDEA doesn’t change the source data

• IDEA also tracks the work performed with an audit trail

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KEY areas to use IDEA

• Sampling (i.e., CMA / DUS / MUS )

• Stratification

• Extraction of unusual items

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Client size for IDEA

• Audit fee < $10,000 = probably not worth it, unless you are looking for something or want to perform a simple sample selection

• Audit fee > $30,000 = starts to be useful for expenditure and payroll testing for selecting samples for testing

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Client industries for IDEA

• Generally good for industries with large transaction volumes where transaction amounts are small dollar value

• Would be useful for financial services and retail clients

• Can be useful with other service and manufacturing clients

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Planning is key!

• When you are going to use IDEA, plan for it

• Discuss it with the client and get there buy in

• Identify what tests will be performed with IDEA

• Identify what data will be needed, in what format,at what date it is required, andwho will provide it

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What do clients think?

• We don’t usually go through the testing approach with them, but they love it when we have data that they don’t.

• It is especially useful to have the data to back-up management letter comments (i.e., 56% of population x is outside your determined limits).

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Some questions . . .From: Sent: Wednesday, 23 April 2014 9:46 AMTo: Matthew GreenCc:Subject: FW: IDEA Presentation

My thoughts on what we want covered in the IDEA presentation: • What is IDEA?• What does IDEA do?• How does it work, ie where does it sit, on laptops or on a server? Can it be used off-site? What hardware is needed?• How do you organise client data to enable IDEA to use it? How difficult is that? Is there any software that it can’t use? Does client need an IT person

to provide the data? What does client need to do to give us the data in the form needed? How much time does the client need to do this? How do we get the data from the client’s system to ours?

• What tests does IDEA do, ie does it come with a suite of tests already designed? Can you design more tests? How hard/ easy is that to do? Is it practical to design your own tests, or do you have to pay IDEA to do this? How often do you design your own tests?

• How do you manage IDEA? ie do you have a few people who run it on all clients, or do all your team know how to do it? Is there a big set up cost?• I hear that it has a tie in with CaseWare? Is this a real benefit? How?• Why would you use IDEA rather than Excel?• Buying IDEA – do you buy a licence for the firm, or is it 1 licence per machine? Can you use licences on different machines? Is the licence per user or

per machine?• Cost of IDEA.• How does it benefit the firm? ie do you save costs on an audit? Do you do a better audit? Are there tests that you do with IDEA that maybe were not

done before and should have been?• What do clients say about your use of IDEA? Do they ask for some tests to be run for their own benefit?• What do your staff think about using IDEA?

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YOUR PRESENTERS

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DisclaimersThis document contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice.

We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid. We are under no obligation to update the matters considered in this document after its publication.

© Hanrick Curran, June 2013All rights reserved

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Australasian Chartered Accountants Training Group - Using IDEA for auditing client data

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