When dealing with numbers it is expected that all results should be equal, however when it comes to external and internal auditing, dirty data means this is often not the case.
One of the biggest issues facing auditors is dirty data – duplicate, missing, or inaccurate customer and business information. As mentioned in our earlier series, Experian reported that 60 percent of dirty data can be attributed to human error, which means that auditors have the capacity to fix these issues on the ground level.
So, what is the future of dirty data in the auditing space and what steps can we take today to reduce the adverse impacts which dirty data has on confidence levels and value for businesses?
National Audition Group Managing Director, Steven Watson, sat down with My Accounts Managing Partner, Noel Tuifino, to discuss solutions to overcome the problem of dirty data for the future, and how by doing so, the role of an auditor may be transformed for the benefit of the auditor, the client and end-users
Technology and its involvement in dirty data
In our previous series on dirty data, we highlighted how technology has unfortunately been instrumental in furthering this growing issue. Organisations that blindly trust technology to capture every piece of data, and neglect due process in the meantime, are partially to blame for dirty data.
However, it is not an issue of the technology itself, more so the way in which we use technology. Without doing the due diligence to check if all information is correct, we have created a dirty data cycle. In fact, Steven Watson believes more advanced technology could actually be part of the solution.
“From an auditing perspective, we want to utilise technology to get a certain level of assurance. We’re looking at key confidence levels around data,” said Mr Watson.
“We now have access to bank feeds which weren’t around ten years ago, and now we can see if anything has been deleted or manipulated from the source data, which ultimately raises our confidence levels.”
“Technology is growing at lightning speeds. The fact we can access a real-time data file with all the supporting documents attached to every single transaction, that’s eliminated so many efficiency issues in terms of us having to select samples, ask for the samples to be delivered, and physically check it,” he said.
“I think we have to look at where we’ve come from. Twenty years ago we used manual cash books and papers, and when you look at today, it’s purely paperless.”
“In the last ten years, we’ve come a long way. So, I can only imagine the next ten years we’ll still be using computers to continue to expand our role and continually add more value to clients in the best possible way – and not be consumed by dirty data.”
Auditing tools to eliminate dirty data
Auditors and other finance professionals across Australia spend hundreds, if not thousands of hours manually assessing documents to ensure a business’s data is accurate. However, even the smallest mistake may see a business lose a significant amount of revenue or incur unnecessary additional costs..
To eliminate natural human error, more advanced technologies are already being implemented to thoroughly analyse documents and other supporting materials to reduce the likelihood of dirty data.
“The computer should be able to do it already, and many are coming out now that can,” said Mr Watson.
“We’ve seen this with the IMB Watson computers, and they’re now marketing audit services to large corporations where they can go in and attach these computers to their internal systems. The computer can do real-time data analysis around the confidence of the data that’s coming through,” he said.
IBM’s Watson has advanced auditing tools that allow it to read documents, pick up mistakes and offer recommendations. This was the case when the technology was applied to a big four accounting firm in 2018.
According to IBM, Watson was trained on “10,634 documents and five different R&D models by 13 tax professionals”. Watson was able to recommend correct tax treatment, in three out of four scenarios, and created an “incredible audit trail” justifying its conclusions.
In Australia, cloud-based accounting software, such as Xero, is also helping to assist auditors in collating information and identifying gaps or mistakes.
“Back in the day, you would have to write up your manual work papers, select your samples and tick it off as you go. Now we can connect our audit software into Xero. It extracts the data in real-time and will run 120 different tests on that data right now,” said Mr Watson.
And it’s not just the tech companies that are working to reduce dirty data in businesses. In Australia, ASIC, the ATO, and Macquarie Bank have reportedly been working to collate a business’s bank data into categories, so when the information comes into bank feeds, it is sent to either accounts or noted for a tax return.
This could help automate the process of tax returns, allowing accountants to not have to lodge a return for a company as the ATO will already have the appropriate information.
The role of the auditor moving forward
As processes of automation improve and programs, such as those listed above, are tasked with the time-consuming auditing grunt work of dealing with dirty data, the role of the auditor will continue to change moving forward.
Having the time to understanding the business – its risks, concerns, and the industry at large – means auditors can advise on how to implement the internal controls they need to succeed, as well as the governance and framework that’s best for their business.
“A lot of businesses don’t succeed because they haven’t got appropriate governance structures or internal controls in place, and this is where fraud can occur,” explained Mr Watson.
“If the auditor has not had the time or opportunity to advise them, then they’re always looking back. They are focused on getting data and checking it, rather than taking a proactive forward-looking approach.
“If we can eliminate all the ticking and checking and just focus on the broader issues moving forward, that’s what the role of the auditor should be,” he said.
By reducing dirty data through better use of technology, the auditor is afforded the opportunity to spend invaluable time with key management in the company. The auditor can better discuss the risks identified in the auditing process and outline how to address them and implement controls in the business.