Week 6 - Diagnostic analysis Flashcards
What is diagnostic analytics?
Diagnostic analytics basically asks the questions “Why did it happen?” and “What are the reasons for past results?”
These analytics are performed to investigate the underlying reasons for past results that cannot be answered by simply looking at the descriptive data.
How is a diagnostic analytics of anomalies/outliers performed?
Using various techniques and tools such as:
* Z-Score and Box-and-Whiskers Charts – outlier detection
* Sequence Checks – detects gaps in records
* Duplicate Testing – detects duplicate records
* Variance Analysis - looks at differences from expectations; typically performed by management accountants
* Benford’s Law - identifies transactions or users with non-typical activity based on the distribution of the first digits of transaction amounts
* Cluster Analysis – groups records by non-obvious similarities
What is a z-score?
- Identifies outliers by calculating standard distance from the mean.
- High z-score values represent outliers.
What is a box and whisker chart?
A visual tool used to display the distribution of data through their quartiles.
Key observations from a Box Plot:
- Shows key values like the median, average, and 25th/75th percentiles
- Identifies outliers and their values
- Reveals if the data is symmetrical or skewed (and in what direction)
- Indicates how tightly data is grouped
Extra info:
- “Whiskers” are lines extending from the box, showing variability outside the upper and lower quartiles
- Outliers may be shown as individual dots
- Can be drawn vertically or horizontally
What is a sequence check?
An internal control used to ensure that all transactions (such as checks) are accounted for in order and that none are missing.
Key points:
- Helps detect missing or duplicate documents (e.g., checks, invoices)
- Missing checks may be due to:
Voided checks
Stop payments
Fraudulent activity (e.g., unauthorised use of check stock) - Supports accuracy and completeness in financial records
What is duplicate testing?
Duplicate testing is a method used to identify repeated transactions in accounting records.
Key points:
- Helps detect manual or system errors (e.g., typos, duplicated payments)
- Duplicate entries may indicate fraud or mistakes
- Regular duplicate testing improves accuracy and helps prevent losses
What is variance analysis?
A management accounting technique used to compare actual figures (sales, prices, and costs) with budgeted or forecasted figures.
Key points:
- If actual sales/prices are higher than budgeted or costs are lower, the variance is favorable
- If actual sales/prices are lower or costs are higher, the variance is unfavorable
- Colors are often used to easily distinguish favorable vs. unfavorable variances
What is Benford’s Law?
Benford’s Law describes a predictable distribution of first digits in large sets of naturally occurring numbers.
Key points:
- The probability of a digit appearing first is given by: log(1 + 1/[digit])
- Lower digits (like 1) occur more frequently as the leading digit than higher ones
- Used to detect anomalies or fraud in data sets
- Can also be applied per individual to flag unusual behavior or potential fraud
What is cluster analysis?
An unsupervised learning algorithm used to group data points into clusters based on similarity, without prior knowledge of how many clusters exist.
Key points:
- No predefined labels or outcomes
- Used to explore natural groupings in data
- Makes no assumptions about the underlying relationships in the data
What is drill-down testing?
A technique that allows users to click on summary values in reports or dashboards to view the underlying detailed data.
Key points:
- Enabled by modern software and analytics tools
- Helps investigate the “why” or “how” behind a number
Common examples:
- Clicking total sales to see daily sales breakdowns
- Analysing the highest owing customer
- Identifying the most profitable customer or product
What is statistical analysis?
??? the lecture slides dont really help lol
