External auditors have a tough job. For one: they need to perform audits of their clients. This requires them to test and verify the underlying transactions that support the final numbers that land on their client’s financial statements. They have a very short window of time to do this and are under a lot of pressure to be within budget. Not only that, but they then have to provide assurance that there are no material misstatements to the financials. In other words, they are vouching for that client. Based on their professional judgment and expertise in accounting and auditing. But by doing so, they also take on risk The risk that they might not have identified those transactions that could have an effect on the financial statements In 2008. A practice guide was released by the Center for Audit Quality or CAQ that addresses Journal Entry Testing for evidence of fraud in accordance with AU Section 316, also known as SAS 99 “ Consideration of Fraud in a Financial Statement Audit.” Its goal is to “ provide practical guidance for auditors with respect to testing in accordance with AU, Section 316 journal entries and other adjustments made by company management.” It goes on to say that AU Section 316 requires an auditor to “ design procedures to test the appropriateness of journal entries recorded in the general ledger……….made in preparation of the financial statements.”
The Practice Guide also lists the following tests that can be performed on General Ledger to help address Audit Risk. Such tests include finding journal entries that don’t balance, entries posted on weekends, and duplicate entries, just to name a few. These tests can all be carried out using Data Analytics Fundamentally, Data Analytic technology gives the auditor unparalleled capabilities to analyze and test 100 % of all transactions within a given period. This eliminates having to sample a group of records and then make educated guesses about the entire population of transactions. It helps minimize the risk of not detecting something that should have by leveraging the tool to scale effectiveness and efficiency. In this short article, I want to show how easy and fast it is to perform a series of Data analytics tests on a General Ledger that conforms to the CAQ guide addressing SAS.
We’re going to be using the SmartAnalyzer tool within IDEA. Smartanalyzer is an easy-to-use tool that allows you to run a suite of pre-defined audit tests covering a wide range of financial areas for external auditors. I’m going to show you how the Financial App can be used on any GL from tagging of fields to execution of tests to reporting of results All within seconds. Let’s get started In IDEA. I’m going to access the SmartAnalyzer tab to begin tagging. The fields in the General Ledger database that I’m currently working on. All that I need to do to ensure that the tests run correctly is to make sure I assign the fields in my General Ledger to the fields per the test. Once I finish tagging my fields, I can save the field tags to a file that could be used on a subsequent general ledger for that engagement. The tests related to General Ledger are listed Before running them. I will specify some parameters, such as specific text, that I want it to find or any empty comments in the description field. I can also specify threshold amounts for extracting high-risk entries from General Ledger, And I can save these parameters as well to be used on subsequent engagements. I’ll select the tests to run and click on the Run. Button IDEA will perform all of the extractions summarizations and data analytic tests on 100 % of the detail. Transactions in the GL SmartAnalyzer will generate a results window that displays a preview of the generated test results which can be drilled down to it. ‘s detail: If I close SmartAnalyzer to go back to the main IDEA program, I will see all the databases that were generated from the test on General Ledger. I can open each database to see the transactions for each test, such as the Duplicate Journal, Entries test, or Weekend entries. The Out of Balance. Journal Entries test yielded 9 journal entries that were out of balance From there. I can drill down to investigate the detailed transactions that comprise that specific entry from there. I can document the test results and generate a report that can be exported to a pdf file. I can also export all the test results to Excel. That will contain a summary, describing the test parameters and results. A second sheet contains the actual evidence from the test, which can be part of your Data, Analytic, documentation process. In addition to General Ledger, The Financial App also contains pre-defined tests that cover Accounts, Receivable Inventory, Fixed Assets, and Accounts Payable. So in conclusion, External Auditors have to tackle significant challenges when providing assurance to their clients. Data Analytics is crucial in performing 100 % transaction testing. That helps Auditors mitigate risk, The authoritative bodies such as the AICPA and CAQ state the importance of designing procedures for testing the appropriateness of Journal Entries. To do this, you can’t, avoid Data Analytics, They go hand in hand, Tools like IDEA and the Financial App for SmartAnalyzer make this process easy fast, and effective. By allowing the auditor to execute pre-defined tests on General Ledger generate the evidence and document the results To learn more about IDEA and the Financial App for SmartAnalyzer. You can visit our website or send us an e-mail