More Than Just an Audit

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More Than Just an AuditWhy Not?
Assurance Advisory Business Services
Eckardt Kriel
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AGENDA

• Current State Overview
• CAATs
• Brief Description of our progress in EY -
  Canada
• EY3D
• Continuous Auditing
• Look Into the Future

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Current State
LEVELS OF DETECT RISK ASSURANCE FROM
ANALYTICSThe 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.

• The following is an extract from the Audit
  Methodology.
• 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.
• However the future is going to be VERY different
  for the auditor of tomorrow.

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Current State contd...

• Traditional Audit CAATs can be characterized as
  follows

• Recalculate
• Aging
• Duplicate Testing
• Graphs - histograms
• Merge, join split
• Confirmations
• Statistics

• Data Capture
• Extract sample
• Sort
• Summarize
• Footing
• Stratify
• Sequence testing

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Business Drivers for Change

• As eCommerce and other initiatives advance many
  established business practices are being
  shattered.
• In this world of the future, economic events will
  be captured, measured, recognised and reported
  electronically (read as instantaneously),
  without any paper-based trail.
• Data volumes increase exponentially, data being
  stored in disparate data stores and in a variety
  of different forms.
• 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.
• Auditors are facing increased pressure on fees
  and demands to increase value.

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Future State

• In addressing the needs of the auditor in the
  future state, EY has invested in the development
  of tools like EY3D which have the potential of
  playing an important role of gaining insight and
  adding value
• Tests of Controls ?
• Substantive Tests ?

• System Conversion
• Application Reviews
• Unique Value Add Services

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EY3DTM
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Features

• 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.
• 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

• 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.
• 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

• Similarly, EY3D can play a powerful role in
  diagnosing business process issues, including
  ERP systems like SAP.
• 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 Wheres the Value?

• Audit Role 100 transaction testing- no
  samples. Look to data for source of evidence.
• Payments to terminated employees.
• Payments to inactive, invalid vendors.
• Unusual payments.
• Check payment authorization limit testing.
• Business Process Improvements
• Cash Management lost discounts/interest paid,
  payments to suppliers too early/ too late.
• supplier spend analysis.
• Vendor master file analysis.
• Cash Recovery
• Duplicate payments to suppliers, overpayments of
  GST/PST, employees abusing expense accounts.
• Irregular Activity
• Fictitious suppliers on master file,
  re-processing supplier invoices.
• Benchmarking/KPIs
• No. of days to process invoice payments, no. of
  invoices processed per month.
• Risk Management
• Canadian Soc Insurance Number analysis invalid
  SIN nos., immigrant status.

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Benefits

• High impact on the bottom line.
• Productivity gains through controlled management
  of risk .
• Clean-up of vendor master file.
• Demonstrate a pro-active approach to fraud
  detection and management.
• Opportunities to recover cash from vendors which
  have been paid more than once.
• Opportunities to recover cash from employees who
  have abused the system.
• Opportunities to improve future cash flow by
  preventing further cash leakage.
• Opportunities to negotiate better terms from
  suppliers.
• 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
• more frequent interaction with the client
• taking a proactive business process view of the
  client
• the timely consideration of industry knowledge
  and
• accessing clients information electronically.

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Continuous Auditing or Real Time Assurance
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Key Benefits

• 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
• 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
• the use of standard models facilitates the
  gathering and sharing of benchmark data across an
  industry or segment
• 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