Guide Questions:

a) How do nature, extent, and timing of audit procedures help us identify when to apply Data
Analytics to the audit process?
b) When do you believe that Data Analytics will add value to the audit process? How can it most
help?
c) Using Table 6-2 as a guide, compare and contrast predictive and prescriptive analytics. How
might these be used in an audit? Or a continuous audit?
d) An example of prescriptive analytics is when an action is recommended based on previously
observed actions. For example, an analysis might help determine procedures to follow when
new accounts are opened for inactive customers, such as requiring supervisor approval. How
might this help address a potential audit issue?
e) One type of descriptive analytics is simply sorting data. Why is seeing extreme values helpful
(minimums, maximums, counts, etc.) in evaluating accuracy and completeness and in potentially
finding errors and fraud and the like?

ANSWERS:

a. Nature, timing, and extent are responsive to the assessed risks of material. The purpose is to
provide a clear linkage between the nature, timing, and extent of the auditor's further audit

b. The use of data analytics probably has not advanced as rapidly in external financial
statement auditing as it has in internal auditing, where many organizations use continuous
auditing and continuous monitoring of data to identify risks and anomalies as part of their
system of internal control But data analytics has the potential to transform external auditing
just as it has changed internal auditing.

c. Predictive identifies common attributes or patterns that may be used to identify similar activity,
the auditor uses the variables to build models that can be used to predict a likely value or
classification. While Prescriptive recommends action based on previously observed actions,
these analytics can assist future auditors who encounter similar behavior. Using artificial
intelligence and machine learning, these analytics become decision support tools for auditors
who may lack experience to find potential audit issues.

d. A prescriptive analytic would allow an auditor to ask questions about the transaction to learn
whether this new account is potentially fake, whether the employee is likely to create other fake
accounts, and whether the account and/or employee should be suspended or not. The auditor
would take the output, apply judgment, and proceed with what he or she felt was the
appropriate action.

e. Descriptive analytics are useful for sorting and summarizing data to create a baseline for more
advanced analytics. These analytics enable auditors to set a baseline or point of reference for
their evaluation. It is very helpful in evaluating accuracy and completeness and in finding errors
and fraud because in all the data that is sorted, you’ll be able to identify immediately the error
or such as it already has a baseline or point of reference, so it would not be that difficult to
distinguish which is true and the like.