The KPMG Audit Powered
by Data & Analytics
A Data & Analytics Discussion
March 4, 2016
QUALITY + INSIGHT = VALUE
KPMG AUDIT
QUALITY + INSIGHT = VALUE
KPMG AUDIT
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
1
AUDIT 2020: A FOCUS ON CHANGE
93%
of survey respondents believe
“Audit needs to better
embrace technology”
58%
WHAT EXTERNAL FORCE WILL BE KEY?
Three-out-of-four auditors
rank the audit profession as on
par or behind in technology with
its clients and other industries
HOW WILL AUDIT TRANSFORM?
53%
say
Data & analytics
is transforming how audits are
conducted, enhancing audit
quality and effectiveness
say
Technology
has the greatest impact
on the audit profession
Most cited benefits of technology are
59%
58%
Increased
efficiency
Better tools for
sophisticated analysis
BIGGEST CHALLENGES IDENTIFIED
66%
59%
See Culture
See Regulatory Environment
are seen as the biggest challenges to enhancing the role
of D&A in the audit.
kpmg.com/us/audit
Based on a survey of 151 U.S.-based respondents, including audit committee chairs and members, C-level financial executives,
audit associates and accounting students.
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
2
What is Data and Analytics?
Data is raw material that becomes valuable through the use of analytics. Big Data requires
advanced analytics and technology to capture the value.
Purchases
Audit Quality
Customer Data
$
Risk Warnings
Competitor Actions
Financial Insights
Machine Data
Economic Factors
Log Files
Media
$
General Ledger
Issue Isolation/Identification
Data
Transformation,
Visualization &
Analytics
Causality Insights
Process-Level Insights
Controls
Automated Action
Sales
Call Center
KPMG AUDIT
Keys to Success
■ Solid handle on data
available throughout the
organization, enhanced with
access to relevant 3rd party
data
■ Strong information
management to fully access
and leverage the
organization’s data
■ Technology capability to
transform big data into
actionable data for qualitative
and quantitative analytics
Better Informed Judgement
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
3
How Data and Analytics is Used in Business
Business has fundamentally changed – an organization’s competitors (known and unknown)
are harnessing data to drive growth and profitability now
Keys to Success
■ Understanding the non-obvious
connections in the complex, global
and ever-changing economy
■ Dynamic analytics solutions
improve agility. These solutions:
Online Videos: Effect on In-store
video rentals with recommendation
engines and easy delivery
Insurance Companies: Impact of
dynamic pricing for profitable
customer acquisition
– Automatically identify relevant
changes in the constantly
changing environment
– Account for the effects of those
changes on your business
– Provide sound decision support
within this context
Chip Manufacturers: Impact on auto
manufacturer supply base during the
Great Recession
KPMG AUDIT
Smart Thermostat Technology:
Imminent impact on utility company
profitability
■ Holistically address the growth,
efficiencies, and risk mitigation
agendas
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
4
The KPMG Audit Powered by Data & Analytics
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
5
The KPMG Audit Powered by Data & Analytics
CURRENT
FUTURE
OVER 5 YEARS
TECHNOLOGY INVESTMENTS
HISTORICAL
MANUAL AUDIT
THAT WAS PAPER-DRIVEN
ANALYSIS
OF EXPERIENCE WITH
DATA ANALYTICS
DATA DRIVEN
SNAPSHOT
TECHNOLOGY
OF A SMALL % OF SELECT
TRANSACTIONS IN A
DATA POPULATION
SAMPLE ANALYSIS
WITH LIMITED
TRANSACTION
COVERAGE
KPMG AUDIT
DATA ANALYSIS
2 BILLION+
ENABLES
100%
ANALYSIS
FULL POPULATIONS
PATTERN ASSESSMENT
DATA ANALYSIS OF
OUTLIERS + ANOMALIES
POPULATION SAMPLING
BENCHMARKING
ENHANCED QUALITY
INTERNAL • INDUSTRY • PEER
USING
TECHNOLOGY
+ DATA ENABLES
USE OF AUTOMATION
IDENTIFY
PROCESS IMPROVEMENTS
BUSINESS PERFORMANCE TRENDS
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
6
The KPMG Audit Powered by Data & Analytics
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
7
The KPMG Audit Powered by Data & Analytics
RISK ASSESSMENT
External data
External data
Company data
PLANNING & RISK
ASSESSMENT






D&A is used
throughout
the audit
process
KPMG AUDIT
Account pairing
Predictive account analysis
Financial flow visualization
Automated audit procedures
ERP-enabled audit procedures
KPIs
COMPLETION
(ROLLFORWARD AND FINAL
TESTING)
INTERIM
TESTING








Automated audit procedures
ERP-enabled audit procedures
Journal entry deep dive
KPIs
Automated audit procedures
ERP-enabled audit procedures
Journal entry deep dive
KPIs
Company results
Actionable Insight Reporting
Issuance of Audit Opinion
Historical data file
Created from prior year’s
Risk Assessment,
Account/Assertion and
Rollforward Routine
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
8
Data Powered Planning Demonstration
Data Powered Planning
Financial Flow Visualization shows the general ledger flow of transactions to help rapidly identify manual
“risk points” in financial recording and reporting processes
$241,578.13
$12,713,383.50
RevenueS
Trade accounts
receivable, netS
$4,619,94.22
$3,257,078.03
Other
receivableS
Cash and
cash
equivalents
$6,685.64
$135,416.71
$95,639.35
Trade
accounts
payable
$4,720.63
$509,591.03
Revenue
KPMG AUDIT
Balance Sheet
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
9
Data Powered Testing - Journal Entry Deep Dive
Interim Testing
Rapid analysis of all journal entries, and advanced tools to identify those journal entries indicating additional consideration by our professional standards.
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
10
Data Powered Testing – ERP-enabled Audit Practical Examples
PROCEDURES
ENHANCEMENTS TO AUDIT QUALITY
BENEFITS TO YOU
Revenue and Accounts
Receivable
Identifies discrepancies in
price and quantity between
invoices, sales orders and
shipping documentation
Identifies stock-outs and customer orders
outpacing shipped products
Segregation of Duties
Pinpoints areas of
increased risk by identifying
incompatible duty
assignments and specific
transactions where such
duties occurred
Identifies process improvement opportunities
related to users having the ability to perform two
or more incompatible duties and specific
transactions that could warrant management
attention (e.g., process, control or business
opportunity improvement)
Fixed Assets
Analyze fixed asset
sub-ledger for changes
to in-service dates,
useful life and salvage
value
Identifies changes that might be an opportunity to
improve or update accounting policies,
procedures and processes
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
11
Segregation of duties analysis
Conflicting authorization used in purchasing transactions
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
12
Segregation of duties analysis (continued)
Conflicting authorization used in purchasing transactions
Potential risk where 7 users posted
$10 million in transactions with
conflicting authorizations:
goods/service receipt entry, A/P
invoice entry, and payment approval
After investigating the underlying
transactions and discussing with the
client, we may conclude there is little or
no risk here.
The business may wish to streamline
authorizations and eliminate a potential
control deficiency related to the
number of individuals with conflicting
duties.
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
13
Completion – KPIs
KPIs obtained from KPMG’s proprietary databases and publically available information are used to benchmark
companies across their industry providing insight into operational and financial risks
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
14
The KPMG Audit Powered by Data & Analytics
 Security of data will remain a key issue
going forward
 Engagement with standard
setters, regulators and clients toward a
common goal
 Universities and auditors alike must
embrace this evolved approach to
understanding a client
 The future will require deeper training in
new areas
 Understanding of non-traditional
disciplines (IT, risk management,
statistics, forensic)
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
15
The KPMG Audit Powered by Data & Analytics
“Bringing our D&A capabilities to the audit is an
evolution, not a revolution, and the delivery of the
audit will transform over time. Our expectation is
that audit professionals can deliver the most value
not only by focusing on individual tools or the
extraction of data, but especially on the application
of professional judgment to the results of the D&A
capabilities. This means our people will investigate
and understand the business reasons behind
identified anomalies and exceptions and will make
the appropriate judgments during the audit based
on these results.”
Roger O’Donnell, Partner
Global Head of Data & Analytics – Audit
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
16
KPMG Audit Powered by Data & Analytics
Questions
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
17
David Seay
Partner
Kansas City Audit Practice Leader
Michael Remmert
Manager
Kansas City Audit Practice
The information contained herein is of a general nature and is not intended to
address the circumstances of any particular individual or entity. The perspectives of
survey respondents do not necessarily represent the views of KPMG LLP.
www.kpmg.com
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member
firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 338246
The KPMG name, logo and “cutting through complexity” are registered trademarks
or trademarks of KPMG International .
QUALITY + INSIGHT = VALUE
KPMG AUDIT
QUALITY + INSIGHT = VALUE
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG
International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246
18