DATA ANALYTICS

Data provides the basis for all financial and managerial information and decision making
within companies. Today, more than ever, companies have access to a tremendous
amount of data, from within and outside their company, upon which to base their
decisions and to produce accurate financial documents. The accountant of the future
must be data literate and technologically savvy, so it is imperative that students develop
an understanding and appreciation of big data and data analytics concepts.

The Data Analytics and Accounting lessons are designed to fit into your course to help
give accounting students a foundation in how data can be gathered, analyzed, and used
in decision-making. The lessons can be presented in any order. The following is an
example of how they can be used in your course.

Data and Its Use in Accounting

The accounting information system is the source of much of the data that is used for
analysis throughout the accounting and financial reporting processes.

Learning Objectives

Explain how value can be derived from data analysis.

 Give examples of companies that have used data to lead to discovery and
innovation.
 Describe how data can be used to reduce uncertainty and risk related to
business decisions.
 Reveal the risks of poor data management.
 Give examples of data sources.
 Summarize the uses of predictive and descriptive data mining.
 Contrast developed and emergent analytics.
Key Concepts

 Data analysis can reduce decision uncertainty by identifying otherwise

unknown opportunities or threats, and, by doing so, it can enhance or give
rise to competitive advantage.
 There are many sources for data and applications of analysis (customers,
products, environments) in every industry.
 Data mining is the process of automatically searching large volumes of
data, for models and patterns, using computational techniques from
statistics, machine learning, and information theory.
 By analyzing data, you can often find associations, sequences,
classifications, anomalies and fraud, grouping/clusters/segments, and
forecasts.
 Predictive data mining is used to forecast outcomes, whereas descriptive
data mining is designed to bring out information that is present but buried
in a mass of data.
 Developed data analytics data offers objective insights to supplement and
guide human decision-making, whereas emergent analytics is focused on
using data to drive automated and/or autonomous processes.
 Data analysis is applied in accounting in many ways. It influences how
businesses can improve budgets, plans and forecasts; determine strategy;
reduce operational costs; and detect fraud. It can also shape how financial
statements are prepared and audited.
 Because accountants are already immersed within IT, financial systems
and reporting, and serve as the go-between for upper management,
operations, and external stakeholders, they are well positioned to take a
leading role if they understand the applications for big data.

Discussion Questions:
(1) Have you noticed that “big data” affects your daily life? Give some
examples.
Students may discuss things like online marketing catered to their
preferences and pop-up coupons on their phones based on
preferences & location tracking.
(2) There is a wide variety of data sources. What are some accounting-
related uses of each type?
RFID tags can be used to track inventory location, as well as to
extract cost and price data from products being sold, and updating
inventory. Mobile phones are used for inventory tracking.
 (3) One of the most interesting developments from the rise of “big data” is
that organizations can combine traditional and non-traditional types of
data to obtain meaningful (and actionable) insights.

Challenges of Big Data

The nature of the data used by organizations, focusing on how the data, if not high
quality, can lead to incorrect assumptions and conclusions.

Learning Objective

Discuss how to mitigate the negative consequences than can arise when using
data analytic models to predict human behavior.

Key Concepts

 While the use of big data, when managed wisely, can provide important
insights, it can also lead to unintended, negative consequences.
 "Garbage in, garbage out"- This refers to using invalid data in the model,
which will produce useless results.
 Problems arise in models that do not learn from their previous decisions.
 Problems can arise in models that predict if the predictions are self-
reinforcing.
 Simpson’s paradox- in which a whole body of data displays one trend, yet
when the body of data is broken into subgroups, the opposite trend comes
into view for each of the subgroups.
 Examples of data analysis resulting in negative feedback loops and
consequences are given in the lesson.

Discussion Question:

The proliferation of big data brings up many ethical questions. Have a basic discussion
with students about when it is appropriate (or not) to use individuals’ data. An easily
applicable example is discussing using online data for hiring decisions. (Should your
future employers check your social media accounts before extending an offer for
interview or internship? What about just a Google search that might bring up a
misdemeanor police report or a picture of you in a political t-shirt?)

Descriptive and Predictive Analytics

https://www.youtube.com/watch?v=RAw55JEcnEs

Learning Objectives

Apply quantitative technique to analyze a data set.

 Contrast different descriptive mining methods, including association analysis,
cluster analysis and factor analysis.
 Contrast different prescriptive mining methods, including discriminant analysis
and linear and logical regression.
 Contrast data sampling techniques.
 Discuss the importance of accounting for variable interactions.
 Summarize data using statistical terms.

Key Concepts

 Models that allow for continuous performance monitoring can help you identify
important factors, organize them, hypothesize about them, and discover
connections between disparate data in varying forms from various sources.
 Describing data variables can be done by looking at them and by using statistical
terms, including averages and standard deviation.
 Descriptive data mining methods are used for reducing, summarizing, and
grouping data. Methods include association, cluster, and factor analysis.
 When the dependent variable is discrete, the predictive data mining method used
is for classification whereas a continuous dependent variable (for instance, total
income) is used in predictive data mining methods. Examples of predictive
methods include discriminant analysis and linear and logistic regression.
 There are different ways to create a sample of a population, including random,
systematic, stratified and cluster sampling.
 The goal of data normalization is to make the variables proportional to one
another.
  Discretization is the process of converting continuous data into a typically small
number of finite values.
 Collinearity confuses the effects of the predictors and must be accounted for if
there are interactive variables.

Discussion Question
When would predictive data analytics be used? When would descriptive data analytics be more
appropriate?