In many ways, detailed and comprehensive financial analytics are the lifeblood of your entire organization. They help you track productivity, identify inefficiencies, and manage risks. Furthermore, financial data analytics are required for compliance auditing purposes.
But what can you do to help your entire team prepare for an upcoming audit?
Many organizations use software like IBM Planning Analytics to organize financial information, but the processes and best practices below apply to all modeling efforts, including simpler ones.
Every publicly-traded company in the U.S. is subject to an annual financial audit, per the Sarbanes-Oxley (SOX) Act. Many small firms are also subject to other audits, such as IRS audits.
At a minimum, these audits require the following documents:
Additionally, some organizations may be subject to additional audits, for assurances such as credit card data security (PCI DSS compliance) or general personal information security for protected individuals, such as European citizens (GDPR) and residents of California (CCPA).
Generally speaking, there are three types of financial audits companies are subject to:
Knowing which audit you’re preparing for is essential to ensuring the availability and accessibility of the correct documentation, reports, and analyses. In the case of internal and third-party audits, you’ll need the minimum documentation noted above.
During an external or IRS assessment, auditors often examine the following information:
Ensuring the availability of these documents, as well as any other information specific to your audit, will help ensure a smooth and efficient auditing process for everyone involved.
Specifically, the documentation above will help your external auditor in the following ways:
The best way to streamline our audit in this manner is to use powerful finance and operations analytics tools.
Preparing basic documentation for an audit is only the first step. Most likely, you’ll want to present auditors and other stakeholders with more advanced insights into your company’s finances, which you can generate through financial analytics.
Leveraging extensive datasets, financial analytics, and changelogs helps streamline the audit process by providing easily reviewed and verifiable information to auditors. An easier audit is less disruptive to your operations and, overall, less costly for your organization.
It's ultimately up to organizational leaders to pick and choose the datasets and analytical methods they want to use. Some analytical methods will be more suited for audit preparation than those intended more for assessing organizational performance and competitiveness.
You can start by considering the following:
Although the approaches above present broad categories commonly relied upon, your team can also use others, hybrids, or custom analysis.
Now that you have a better understanding of some methods you can use for analyzing data, it’s time to determine which datasets to include and which to ignore. In most cases, you’ll want to include the following datasets:
As long as your organization has the analytical tools and processing power, more relevant data sets generally equate to better and more accurate findings—and reaching that determination faster.
However, it's crucial that all data sets are, in fact, relevant. Broadening scope simply for the sake of more data regardless of its applicability will likely begin distorting your conclusions.
Data analytics are invaluable when investigating potential fraud and non-compliance in the workplace that may be identified during an audit. By utilizing ongoing trend analysis, you'll easily spot discrepancies—which you can further investigate through root cause analysis or predictive analytics.
They can help you verify employee expenses, spot ghost vendors, and identify potential conflicts of interest.
Handling these matters before they're discovered during an external or IRS audit will be invaluable to your organization.
Modern and next-gen analytical software should be used alongside financial analysts to augment their capabilities and streamline their day-to-day responsibilities.
IBM’s Planning Analytics powered by TM1, previously known as IBM Cognos TM1, provides full-scale business planning, forecasting, and budgeting. With a dedicated TM1 server, the platform utilizes a functional database architecture that promotes and supports ongoing data analytics.
However, much like you should augment financial analysis professionals with dedicated software, you should do the same for TM1. While the platform remains exceptionally powerful, it’s not always the best when it comes to intuitive usability.
For example, TM1 lacks a native search function, and any changes that your analysts make must be manually documented for compliance purposes. Without a documented changelog, your organization risks the harshest penalties given by external, SOC, or IRS auditors.
Thanks to QUBEdocs’ IBM Planning Analytics solutions, you’ll be able to make the most of your financial analytics. Whether you’re preparing for an upcoming audit, correcting issues from a prior audit, or just trying to optimize your data collection and analysis processes, QUBEdocs simplifies and enhances TM1 and IBM Planning Analytics with optimizing user functionality—automatic change documentation, in particular.
For more information—or to get started with QUBEdocs and reclaim the significant bandwidth that manually logging each change consumes—schedule a consultation with one of our representatives today.
Sources:
CaseWare. Top 10 Areas Where Data Analysis Adds the Most Value. https://www.audimation.com/top-10-areas-where-data-analysis-adds-the-most-value/
Control Risks. Five tips to transform your compliance function using data analytics. https://www.controlrisks.com/our-thinking/insights/five-tips-to-transform-your-compliance-function-using-data-analytics
eFileCabinet. Financial Audit Types and How Best to Prepare. https://www.efilecabinet.com/financial-audit-types-best-prepare/
Harvard Business School Online. 4 Types of Data Analytics to Improve Decision-Making. https://online.hbs.edu/blog/post/types-of-data-analysis
Investopedia. Audit. https://www.investopedia.com/terms/a/audit.asp
ISCA Journal. Using Data Analytics in a Financial Statements Audit. https://journal.isca.org.sg/2020/09/30/using-data-analytics-in-a-financial-statements-audit/pugpig_index.html
Journal of Accountancy. Data analytics helps auditors gain deep insight. https://www.journalofaccountancy.com/issues/2015/apr/data-analytics-for-auditors.html
SmartSheet. The Ultimate Survival Guide for Financial Audits. https://www.smartsheet.com/financial-audit
Towards Data Science. 6 Data Analysis Methods to Help You Make Great Financial Statements. https://towardsdatascience.com/6-data-analysis-methods-to-help-you-make-great-financial-statements-2bd573a19b17