Lecture 4 - Smart Auditing

Question 1

8 Financial Audit phases (Rittenberg et al., 2010)

Answer 1

1. Client Acceptance & Retention: auditor wants to know if client is reliable
2. Understand the Client: which domain client is in and what kind of issues there are in this area
3. Audit Planning: Auditor can’t check everything, so select areas where he will focus on.
4. Planning Fraud-Related Procedures: Needs data for this phase.
5. Evidence on Controls:
6. Evidence on Account Assertions:
7. Evidence on Fraud:
8. Review & Reporting: adjustment has to be made whether the auditor can give his signature.

Question 2

Data analytics in first phase helps the auditor to

Answer 2

understand the entity and its environment

Question 3

Data analytics in later phases helps the auditor

Answer 3

evaluate financial information through analysis

Question 4

Three types of data analytics in analytical procedures (Trevis Stewart)

Answer 4

1. Scanning: getting an idea of what is going on, the deviations
2. Proof of total: if the total is well
3. Statistical predictive modelling

Question 5

Criteria for selecting a data mining approach (4)

Answer 5

1. Scalability - how well data mining method works regardless of data set size
2. Accuracy - how well information extracted remains stable and constant beyond the boundaries of the data from which it was extracted, or trained
3. Robustness - how well the data mining method works in a wide variety of domains
4. Interpretability - how well data mining method provides understandable information and valuable insight to user

Question 6

Audit 4.0 (Dau & Vaserhelyi)

Answer 6

Semi- and progressive automation of audit

Question 7

Industry 4.0 compared with auditing 4.0 (6)

Answer 7

1. Interoperability: Data integration
2. Virtualization: mirror world: Real-time asset management
3. Decentralization and mass customization: Necessity of automation of audit equations.
4. Real-time capability: CA/CM
5. Service orientation: “Audit as a service”
6. Modularity: Audit apps

Question 8

Continuous auditing (CA)

Answer 8

Is about obtaining audit evidence from systems on a frequent or continuous basis assisted by analytical technology tools.

Question 9

Continuous monitoring (CM)

Answer 9

Is a control mechanism that ensures controls and systems are functioning as intended