Data Analytics Global Issue

State Board Report

February 2017

Having reviewed the use of audit data analytics (ADA) in the six largest United Kingdom audit firms, the Financial Reporting Council released a report in January that recognizes these tools “are global in nature and in some circumstances may operate outside our geographic jurisdiction.” The FRC is calling for other independent audit regulators to work collaboratively to adopt “a standard approach to satisfying ourselves as to the integrity of these tools.”

Audit teams in the UK are using standard ADA tools based on their firms’ assurances as to the reliability and effectiveness to function as intended. One firm formally accredits the tools for audit use by its teams. “Where audit teams use such tools, the actual programming logic that performs the analysis and, where relevant, identifies the exceptions, is embedded in the ADA tool and may not be visible. Hence it is not archived on the audit file and neither is it visible to regulators performing audit quality inspections,” the report states.

The FRC’s Audit Quality Thematic Review: The Use of Data Analytics in the Audit of Financial Statements, reports: “…in our inspection work, we have not identified evidence that would indicate that a centrally assured ADA tool does not function as intended when used as intended.”