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State Board Report

February 2017

The use of data analytics to enhance the quality of audits is being given significant attention by the accounting profession, but what will this mean to the State Boards of Accountancy that are responsible for regulating the profession? That is the new charge that NASBA Chair Telford Lodden (IA) gave to the Standard-Setting Advisory Committee at their January meeting. He explained that he believes data analytics, which enables all transactions to be scanned not just a sample, will have a profound effect on the profession. Chair Lodden told the SSAC: “Focus should be on how NASBA and the State Boards can participate in the creation of the professional standards that embrace this new technology, and how NASBA can bring this information to the State Boards in a timely and meaningful manner.”

NASBA President Ken L. Bishop outlined to the SSAC concerns he and other regulators have in this area:

  1. For regulatory purposes there has to be a common definition of “data analytics,” a benchmark.
  2. What is the appropriate level of “reliance” on data analytics? Auditors say they have to “backfill” when using data analytics, meaning they go back to construct paperwork to meet the standards. There is concern about what really happens within the computer and what the auditor needs to know to comfortably rely on the software.
  3. Software does not necessarily have the equivalent of the auditor’s professional intuition, which is what frequently leads to the discovery of problems. The auditor needs to understand the handshake between the data and the accounting.
  4. How will regulators be able to reach into this software to determine what party is responsible when something goes wrong?

President Bishop said NASBA is seeking ways to be part of the discussion as new standards are developed. He believes it is important the State Boards recognize the significance of their early involvement in the process. The right language will need to be in the Uniform Accountancy Act, and ultimately the Boards’ rules.

SSAC Chair Catherine Allen (NY) led the committee in a discussion of next steps. Besides considering the ramifications of the application of data analytics and artificial intelligence to public accounting, the Committee will continue to monitor and objectively evaluate processes of standard setters, recommending improvements when warranted and sharing their findings with NASBA leadership. Working with Ms. Allen will be Committee members Matthew P. Bosher (VA), Scott Dockins (ID), Timothy F. Egan (CT), Gaylen R. Hansen (CO) and Michael P. Rollage (PA). Staff support to the SSAC is being provided by Colleen Conrad, Louise Dratler Haberman and Nigyar Mamedova.

Also in attendance at the SSAC meeting was NASBA Regulatory Response Committee Chair W. Michael Fritz. His committee is working with the SSAC to respond to the International Auditing and Assurance Standards Board’s Data Analytics Working Group’s paper on “Exploring the Growing Use of Technology in the Audit, with a Focus on Data Analytics.” Mr. Fritz will be moderating panel discussions on data analytics and artificial intelligence to be held at the June 2017 NASBA Regional Meetings.

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