Managers, investors, and lenders often use performance dashboards, graphs, and other visual aids to make it easier to digest complex financial information. These tools can also be used by auditors during financial statement audits as a way to identify trends and anomalies that need to be looked into further.
Data visualization as an auditing tool
When it comes to verifying the accuracy and integrity of a company’s financial records, auditors have a number of tools and techniques at their disposal. One of these techniques is data visualization: the practice of using pictures to demonstrate the relationship between two accounts or show changes in a metric over time. Data visualization can help to improve the effectiveness—and efficiency—of your audit.
The charts and graphs auditors use to facilitate audit planning can be generated through dedicated data visualization software including Microsoft Excel. By using these tools, managers and executives can gain a better understanding of the testing and inquiry procedures used by auditors, in addition to gaining insight into potential opportunities and threats.
Four useful ways to incorporate visualization
Here are four ways an auditor might use data visualization to leverage data from your company:
Breaking down accounting department activity by employee
Pie charts and line graphs make it easier for auditors to analyze the timing, number, and value of the journal entries from each employee in your accounting department. Using this kind of analysis could reveal unfair work allocation in the department or show that an employee is involved in adjusting entries that fall outside their assigned responsibilities. With the help of these tools, managers can then improve internal controls, reassign work in the accounting department, or pursue an investigation of fraud.
Inspecting accounts prone to abuse or fraud
During an audit, certain high-risk accounts must be monitored closely for errors or evidence of fraud. Data visualization may help to better illustrate the timing and extent of refunds and discounts and show which employees were involved in each transaction—and this can uncover potential areas of concern that may need further analysis.
Analysing journal entries at the end of accounting periods
Data visualization tools such as timeline charts may give auditors a clearer understanding of monthly, quarterly, and yearly trends in your company’s activity. Auditors can use these tools to verify and analyze the magnitude and timing of your company’s journal entries prior to the end of an accounting period.
Comparing forecasted and actual performance
Bar charts and line graphs can help to confirm that your company is on track to meet your goals for the period by making it easier to compare your company’s actual performance to its budgets and forecasts. These data visualization tools may also expose significant deviations that auditors need to analyse further to determine if the cause is external (in the case of deteriorating market conditions or cost increases) or internal (in the case of fraud or inefficiency).
Depending on the results, management may need to use the findings of this analysis to revise budgets or take corrective measures.
A picture’s worth a thousand words
Data visualization lets your data speak. These tools can guide your auditors’ inquiries, risk assessment, and testing procedures, and allow them to better understand your company’s operations. During the audit process, data visualization can also help auditors highlight trends and anomalies and explain complex matters to management. Certain charts and graphs can even be attached to financial statement disclosures to make the data more clear for stakeholders. If you have further questions about using data visualization in your audit, contact us.