Accounting technology / Glossary / Audit data analytics

What is audit data analytics?

Definition

Audit data analytics is the use of software to analyse a client's complete ledgers and other data during an audit, rather than testing small samples by hand. Auditors use it to understand the business, identify risk, test entire populations of transactions against set rules and find unusual items that need further work, with the results kept as audit evidence.

Also calledADAaudit analyticsdata-driven audit

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Tests: Whole populations, not samples
Common use: Journal entry testing
Category: Audit

How audit data analytics is used

The auditor extracts the general ledger, sub-ledgers and other data from the client's systems, checks it is complete by agreeing totals to the trial balance, and loads it into an analytics tool. Common routines include journal entry testing, which flags entries posted at weekends, by unusual users, to rarely used accounts or in round amounts; three-way matching of sales and purchases across full populations; trend and ratio analysis by month and location; and reperforming calculations such as depreciation. Results narrow down where to look: instead of a random sample, the auditor investigates the items the analysis flags. Standards still apply in full, so the auditor must show the data is reliable and the routine fits the assertion being tested. MindBridge scores every transaction for risk, Inflo builds analytics into the audit workflow and Modus uses AI for testing and analysis.

Common questions

What is journal entry testing?+

Analysing all journal entries for characteristics linked to error or fraud: posted at unusual times, by unusual users, to unusual account combinations, just below approval limits, or reversed soon after period-end. Auditing standards require auditors to test journals for management override.

Does data analytics replace audit sampling?+

Partly. Where an entire population can be tested by a rule, sampling is unnecessary for that test. Sampling is still used where evidence has to be inspected item by item, such as confirming balances or examining contracts.

What data does an auditor need for analytics?+

Usually the full general ledger detail and trial balances, plus sub-ledgers for sales, purchases, payroll and fixed assets. The auditor checks completeness by agreeing the extract to the client's reported balances.