Data Analytics – How Can They Benefit You?
Written by Tyler Crawford, CPA
When it comes to audits, people typically picture tons of paperwork, rows and rows of journal entries to go through and hours spent gathering data from a select sample of a company’s records, and that’s just to get ready for the audit. But, what if the process became more streamlined? What if a computer did the rote data gathering, allowing you more time to focus on compiling and analyzing the data?
This is where data analytics come into play. The goal of using data analytics is to enhance audit quality and provide a more comprehensive overview of a company’s financial strength. Computers are changing the world and are even enhancing the stable and steady world of accounting. In a nutshell, data is power. Companies are realizing that the data generated and captured by their ERP and accounting software is valuable. Instead of using a “sample” of data, the entire data set can be examined and any anomalies or outliers can be quickly identified and addressed saving time and ensuring a more complete view of the data. Businesses that commit to mining their data and presenting it in a useful and meaningful format (i.e. using a dashboard) will give themselves the competitive advantage that will allow them to thrive in the present. They will also be positioning themselves to survive the future as the exponential growth of technology will leave many businesses in the throes of obsolescence.
But what does this mean for you as the business owner? There are many benefits to you and your accounting team using data analytics. As stated above, data analytics allows us, as your external accountants, to use the whole data set rather than a sampling, which provides a greater probability of identifying transactions that need or require more analysis. Using only a statistical sample from a large list of entries creates the chance that one abnormal entry could be missed if it was not part of the subset. However, by examining the whole data set, all transactions are reviewed, virtually eliminating the chance that one gets excluded.
In addition, we can provide you with services at a higher level as we help you assess and formulate a plan for moving forward using the data compiled from the analytics. With the time savings and continuous collection that data analytics provides, we are able to consult with you all year long, not just during busy season as we perform your audit. Doing so provides you with the ability to identify any issues as they occur rather than after the fact during an annual audit. As your accountants, our focus will shift more from data gathering to a more analytical approach while enabling us to perform risk assessments through comparison to industry data and norms.
With the initiative and more incorporation in businesses, colleges and universities are discovering the need to update their curriculum and programs to keep up with the ever-growing need to understand data analytics. Information systems type classes are being built into business programs that focus on database relationships, querying and formula logic in Excel. The next step will be requiring more statistical analysis coursework in business school along with classes that will give young professionals the basics of computer programming so that they can work alongside IT consultants to create the tools that will be used in the future of managing and running businesses.
As always, there are pros and cons to everything. While there are many benefits to data analytics ̶ real-time assessments, 100 percent sampling, up-to-the-minute inventory counts ̶ there are also some downsides to consider. For instance, the need for electronic security measures will need to be increased and protocols put in place. With the ever-present threat of cyber security, your electronic data needs to be safeguarded as more and more threats are announced every day. In addition, updating or implementing new software could be both time consuming and costly, requiring additional training for staff and creating new processes. In the end, you must make an informed decision and weigh your options. If you would like to discuss this further, please contact a BMSS assurance professional.
One final thought: Albert Einstein said, “No problem can be solved from the same level of consciousness that created it.” The world is changing at a pace that has never before been experienced, which is creating adaptive challenges that business owners and accountants cannot solve using many of the traditional processes and paradigms that have proved successful in solving the problems of the past. Changes of this type can be terrifying. Many will see them as a threat to the “tried and true” and will double down on protecting what is known, thus riding the sinking ship of obsolescence. But those that will look at the changes and embrace them as an opportunity for growth will survive and will be better for it.