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5/18/2015

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QUALITY + INSIGHT = VALUEKPMG AUDIT

The KPMG Audit Powered by Data & Analytics

MACPA Educators Conference

June 5, 2015

KPMG AUDIT QUALITY + INSIGHT = VALUE

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 377954 2


DATA IS EXPONENTIALLY EXPANDING

90% of the world’s current data has been created in the last two years

40% growth in data generated

6 of 10 organizations have more data then they know how to use

15 out of 17 industry sectors in the US have more information stored per company than the US Library of Congress

1.5 million is the shortfall in data-savvy managers and analysts needed to make sense of big data in US businesses

“... the best

performing firms excel at accessing data,

drawing meaningful insights, and

transforming this into action.

CEOs agree that deeper customer insight will

come from a much better use of data and

analytics…

” SOURCE - IBM CEO Survey July 2012

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Organizations – large and small – have already started to adapt to a world increasingly driven by D&A

Key findings of KPMG’s Financial Times survey of CEOs and CIOs on going beyond the data and achieving actionable insights

1.Sixty-nine percent of interviewees consider D&A to be crucial or very important to their growth plans

5.Seventy five percent expressed a level of difficulty in making decisions on analysis data

2.Fifty-six percent have changed their business strategy to meet the challenges of big data

6. Biggest barrier to implementation is identifying the data to collect

3. Majority consider integrating data technology in existing systems 7. Ninety six percent agree that they

could better utilize D&A

4.Eighty five percent said one of the biggest D&A challenges is the analysis and interpretation of data




Data is raw material that becomes valuable through the use of analytics. Big Data requires

advanced analytics and technology to capture the value

Keys to Success

o Solid handle on data available throughout the organization, enhanced with access to relevant 3rd party data

o Strong information management to fully access and leverage your data

o Technology capability to transform big data into usable data for qualitative and quantitative analytics

o Diverse analytics capabilities embedded throughout the organization

Data Transformation, Visualization &

Analytics

Sales

Controls

Social Media

Call Center

General Ledger

Log Files

Competitor Actions

Machine Data

Transactions Customer Data

Economic Factors

Revenue Opportunities

Operational Efficiency Opportunities

Financial Insights

Risk Warnings

Issue Isolation/ Identification

Automated Action

Process‐Level Insights

Causality Insights

Optimization Recommendations

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Netflix: Effect on Blockbuster with recommendation engines

and easy delivery

Progressive: Impact of dynamic pricing for profitable

customer acquisition

Nest: Imminent impact on utility company profitability

Chip Manufacturers: Impact on auto manufacturer supply base

during the Great Recession

Business has fundamentally changed – an organization’s competitors (known and unknown) are

harnessing data to drive growth and profitability now∆∆

Keys to Success

o Understanding the non-obvious connections in the complex, global and ever-changing economy

o Dynamic analytics solutions improve agility. These solutions:

• Automatically identify relevant changes in the constantly changing environment

• Account for the effects of those changes on your business

• Provide sound decision support within this context

o Holistically addressing the growth, efficiency and risk mitigation agendas




D&A Video Placeholder

You can download the video from this link: https://www.dropbox.com/sh/n3cv5ipdbixxmry/AABdbTgSnT2LlvSzRmmq-iPqa?dl=0(right click on the video and hit save as).

In the presentation select the slide for the video placeholder, then go to insert, then insert video, and select the video.

The video makes the presentation too big to email, so save both the presentation and video file in the same folder on a jump drive to take with you the day of the presentation.

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• How will using Data and Analytics change the future of audit?


Expanding the “Pass/Fail opinion”

Benchmarking client against industry standards

Provide client valuable feedback- looking beyond

and understanding broader forces

Leads to an effective audit with improved audit quality




OVER 5 YEARS

ENHANCED QUALITY

CURRENT

OF EXPERIENCE WITHDATA ANALYTICS

DATA DRIVENTECHNOLOGY

USING TECHNOLOGY

USE OF AUTOMATION+ DATA ENABLES

1 MILLION+DATA ANALYSIS

POPULATION SAMPLING

PATTERN ASSESSMENT

FUTURE

TECHNOLOGY INVESTMENTSENABLES 100%

ANALYSISFULL POPULATIONS

OUTLIERS + ANOMALIES

DATA ANALYSIS OF

BENCHMARKINGINTERNAL • INDUSTRY • PEER

IDENTIFYPROCESS IMPROVEMENTSBUSINESS PERFORMANCE TRENDS

ANALYSISSNAPSHOT

HISTORICAL

MANUAL AUDITTHAT WAS PAPER-DRIVEN

OF A SMALL % OF SELECT

TRANSACTIONS IN ADATA POPULATION

SAMPLE ANALYSISWITH LIMITED

TRANSACTIONCOVERAGE

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Actionable Insight Reporting Issuance of Audit Opinion

Historical data fileCreated from prior year’s Risk Assessment, Account/Assertion and Rollforward Routine

External data

Client resultsClient data

External data

RISK ASSESSMENT

D&A is used throughout the audit process

Automated audit procedures ERP-enabled audit procedures Journal entry deep dive KPIs

INTERIMTESTING

Account pairing Predictive account analysis Financial flow visualization Automated audit procedures ERP-enabled audit procedures KPIs

PLANNING & RISK ASSESSMENT

COMPLETION(ROLLFORWARD AND FINAL

TESTING)

Automated audit procedures ERP-enabled audit procedures Journal entry deep dive KPIs



Data Powered Planning Demonstration

Data Powered Planning

Financial Flow Visualization shows the general ledger flow of transactions to help rapidly identify manual “risk points” in financial recording and reporting processes

RevenueS

Other receivableS

Trade accounts receivable, netS

Cash and cash

equivalents Trade accounts payable

$241,578.13$12,713,383.50

$4,619,94.22

$135,416.71

$95,639.35

$509,591.03

Revenue Balance Sheet

$6,685.64

$3,257,078.03

$4,720.63

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Journal Entry Statistics

Data Powered Testing- Journal Entry Deep Dive

Control Assessment

Parameter

Financial Year 2013

First Period 1

Last Period 9

First Date of Entry 2013-1-1

Last Date of Entry 2013-10-7

# of Users 1,221

# of Company Codes 17

Category All Manual Automated

Total JE Count 9,834,073 475,273 9,358,800

Total JE Line Count 189,014,719 1,399,484 187,615,235

Maximum Number of JE Lines 998 992 998

Minimum Number of JE Lines 2 2 2

Average Number of JE Lines 19 3 20

Maximum JE Amount (Total of Debits) 94,590,885,783 1,632,081,646 94,590,885,783

Minimum JE Amount (Total of Debits) 5 25 5

Rapid analysis of all journal entries, and advanced tools to identify those journal entries indicating additional consideration by our professional standards.

0%

100%

JE With Missed UserID

JE Missed User ID

Remainder

7%

93%

JE Missed Description

JE Missed Desc

Remainder

4%

96%

Rounded Line Item ('000)

Rounded LineItem

Remainder

3%

97%

Seldom Used AccountGL Accounts with <50 unique

document numbers vs. Total Used

Seldom UsedAccount

Remainder



Data Powered Testing – ERP-enabled Audit Practical Examples

PROCEDURES IMPACT ON THE AUDIT BENEFITS TO THE CLIIENT

Revenue and Accounts Receivable

Identifies discrepancies in price and quantity between invoices, sales orders and shipping documentation

Identifies stock-outs and customer orders outpacing shipped products

Segregation of Duties

Pinpoints areas of increased risk by identifying incompatible duty assignments and specific transactions where such duties occurred

Identifies process improvement opportunitiesrelated to users having the ability to perform two or more incompatible duties and specific transactions that could warrant management attention (e.g., process, control or business opportunity improvement)

Fixed Assets

Analyze fixed asset sub-ledger for changes to in-service dates, useful life and salvage value

Identifies changes that might be an opportunity to improve or update accounting policies, procedures and processes

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Sales Three-way Match [G1iv]

Data Powered Testing – ERP-enabled Audit Practical Example

Revenue and Accounts Receivable

Unit Price on Sales

OrderInvoice Amount

Quantity Per

invoice

Unit Price on Invoice

Quantity Per Goods

Delivery Notes

Price Difference Sales Order

(DC) to Invoice per Item

Extended Price

Difference

0 99,500 250 398 250 398 100

0 315,000 300 1,050 300 1,050 315

Three-way match [G1iv]

Period

Revenue per

Subledger

Not subject to Three

way Match

Revenue Subject to Three-Way

Match No

Differences Differences

Differences Due to Missing

Data

Expressed in USD ’000

Eight Months From April 01, 2013 to November 30, 2013

12,713 250 12,463 11,563 775 125

% of Revenue 100.0% 2.0% 98.0% 91.0% 6.1% 1.0%

28 11940 400 30 400 2 1

223 229 1 229 1 5 0

210 215 1 215 1 5 0

Total Price Difference 500,

91.0%

1.1%6.1%

Sales – Three Way Match

No differences

Missing data

Differences

12,7

13

10,1

75

8,15

7

7,17

5

4,55

6

3,00

0

36

29

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Eight Months from Apr 1,2013-Nov 30, 2013

Eight Months from Apr 1,2012-Nov 30, 2012

Per

cen

tag

e

Am

ou

nt

in $

000’

s

Sales – General Information

Gross Sales Net Sales

Gross Margin Gross Margin Percentage



Completion – KPIs (continued)

KPIs obtained from KPMG’s proprietary databases and publically available information are used to benchmark companies across their industry providing insight into operational and financial risks

Welcome to KPI Benchmarking- Dashboard

Completion - KPIs

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• Security of data will remain a key issue going forward

• Extensive engagement with regulators and clients toward a common goal

• Auditors must embrace this evolved approach to understanding a client

• The future will require deeper training in new areas

• Understanding of non-traditional disciplines (IT, risk management, supply chain, forensic)




“Bringing our D&A capabilities to the audit is an evolution, not a revolution, and the delivery of the audit will transform over time. Our expectation is that audit professionals can deliver the most value not only by focusing on individual tools or the extraction of data, but especially on the application of professional judgment to the results of the D&A capabilities. This means our people will investigate and understand the business reasons behind identified anomalies and exceptions and will make the appropriate judgments during the audit based on these results. And in most instances, we will need to evolve and refocus our efforts to other activities such as extracting, cleansing, and evaluating the data being collected, as well as addressing anomalies that require investigation.”

Roger O’Donnell

Partner

Global Head of Data & Analytics - Audit

How Does this Impact the Potential KPMG Professional?Data and AnalyticsHow Does this Impact the KPMG Professional?

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Technical Skills

• Business Process Acumen

• Basic computer programming knowledge

• Knowledge of ERP architecture

How Does this Impact the Potential KPMG Professional?

Soft Skills• Creative thinking over the use of

data• Analytical mindset• Interest in adding client value to

the audit



Questions

KPMG Audit Powered by Data & Analytics

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QUALITY + INSIGHT = VALUE

Restriction on Disclosure and Use of Data – This document contains confidential or proprietary information of KPMG LLP, the disclosure of which would provide a competitive advantage to others; therefore, the recipient shall not disclose, use, or duplicate this document, in whole or in part, for any purpose other than recipient’s intended use.

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 377954

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International .

Contacts

Corbin NeiberlineManaging Director, KPMG LLP(202) [email protected]

Timothy HayesSenior Manager, KPMG LLP(202) [email protected]

www.kpmg.com

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