The KPMG Audit Powered by Data & Analytics

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1 The KPMG Audit Powered by Data & Analytics MACPA Educators Conference June 5, 2015

2 The KPMG Audit Powered by Data & Analytics DATA IS EXPONENTIALLY EXPANDING 90% of the world s current data has been created in the last two years 40% growth in data generated 6 of 10 organizations have more data then they know how to use 15 out of 17 industry sectors in the US have more information stored per company than the US Library of Congress 1.5 million is the shortfall in data-savvy managers and analysts needed to make sense of big data in US businesses... the best performing firms excel at accessing data, drawing meaningful insights, and transforming this into action. CEOs agree that deeper customer insight will come from a much better use of data and analytics SOURCE - IBM CEO Survey July 2012 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

3 The KPMG Audit Powered by Data & Analytics Organizations large and small have already started to adapt to a world increasingly driven by D&A Key findings of KPMG s Financial Times survey of CEOs and CIOs on going beyond the data and achieving actionable insights 1. Sixty-nine percent of interviewees consider D&A to be crucial or very important to their growth plans 5. Seventy five percent expressed a level of difficulty in making decisions on analysis data 2. Fifty-six percent have changed their business strategy to meet the challenges of big data 6. Biggest barrier to implementation is identifying the data to collect 3. Majority consider integrating data technology in existing systems 7. Ninety six percent agree that they could better utilize D&A 4. Eighty five percent said one of the biggest D&A challenges is the analysis and interpretation of data 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

4 The KPMG Audit Powered by Data & Analytics Data is raw material that becomes valuable through the use of analytics. Big Data requires advanced analytics and technology to capture the value Keys to Success Transactions Customer Data Competitor Actions Economic Factors Social Media Controls Sales Machine Data Log Files General Ledger Call Center Data Transformation, Visualization & Analytics Revenue Opportunities Risk Warnings Operational Efficiency Opportunities Financial Insights Issue Isolation/ Identification Causality Insights Process Level Insights Automated Action Optimization Recommendations o Solid handle on data available throughout the organization, enhanced with access to relevant 3 rd party data o Strong information management to fully access and leverage your data o Technology capability to transform big data into usable data for qualitative and quantitative analytics o Diverse analytics capabilities embedded throughout the organization 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

5 The KPMG Audit Powered by Data & Analytics Business has fundamentally changed an organization s competitors (known and unknown) are harnessing data to drive growth and profitability now Netflix: Effect on Blockbuster with recommendation engines and easy delivery Chip Manufacturers: Impact on auto manufacturer supply base during the Great Recession Progressive: Impact of dynamic pricing for profitable customer acquisition Nest: Imminent impact on utility company profitability Keys to Success o Understanding the non-obvious connections in the complex, global and ever-changing economy o Dynamic analytics solutions improve agility. These solutions: 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 o Holistically addressing the growth, efficiency and risk mitigation agendas 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

6 The KPMG Audit Powered by Data & Analytics D&A Video Placeholder You can download the video from this link: (right click on the video and hit save as). In the presentation select the slide for the video placeholder, then go to insert, then insert video, and select the video. The video makes the presentation too big to , so save both the presentation and video file in the same folder on a jump drive to take with you the day of the presentation. 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

7 The KPMG Audit Powered by Data & Analytics How will using Data and Analytics change the future of audit? Expanding the Pass/Fail opinion Leads to an effective audit with improved audit quality Benchmarking client against industry standards Provide client valuable feedback- looking beyond and understanding broader forces 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

8 The KPMG Audit Powered by Data & Analytics HISTORICAL MANUAL AUDIT THAT WAS PAPER-DRIVEN ANALYSIS SNAPSHOT OF A SMALL % OF SELECT TRANSACTIONS IN A DATA POPULATION SAMPLE ANALYSIS WITH LIMITED TRANSACTION COVERAGE CURRENT OVER 5 YEARS OF EXPERIENCE WITH DATA ANALYTICS DATA DRIVEN TECHNOLOGY DATA ANALYSIS 1 MILLION+ POPULATION SAMPLING ENHANCED QUALITY USING TECHNOLOGY + DATA ENABLES USE OF AUTOMATION FUTURE TECHNOLOGY INVESTMENTS ENABLES 100% ANALYSIS FULL POPULATIONS PATTERN ASSESSMENT DATA ANALYSIS OF OUTLIERS + ANOMALIES BENCHMARKING INTERNAL INDUSTRY PEER IDENTIFY PROCESS IMPROVEMENTS BUSINESS PERFORMANCE TRENDS 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

9 The KPMG Audit Powered by Data & Analytics RISK ASSESSMENT External data PLANNING & RISK ASSESSMENT INTERIM TESTING External data COMPLETION (ROLLFORWARD AND FINAL TESTING) Client data Account pairing Predictive account analysis Financial flow visualization Automated audit procedures ERP-enabled audit procedures KPIs Automated audit procedures ERP-enabled audit procedures Journal entry deep dive KPIs Client results Automated audit procedures ERP-enabled audit procedures Journal entry deep dive KPIs D&A is used throughout the audit process Actionable Insight Reporting Issuance of Audit Opinion Historical data file Created from prior year s Risk Assessment, Account/Assertion and Rollforward Routine 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

10 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 $12,713, $241, RevenueS Trade accounts receivable, nets $4,619,94.22 $135, Other receivables $3,257, $6, $4, Cash and cash equivalents $95, Trade accounts payable $509, Revenue Balance Sheet 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

11 Data Powered Testing- Journal Entry Deep Dive Control Assessment Journal Entry Statistics Parameter Financial Year 2013 First Period 1 Last Period 9 First Date of Entry Last Date of Entry # of Users 1,221 # of Company Codes 17 Category All Manual Automated Total JE Count 9,834, ,273 9,358,800 Total JE Line Count 189,014,719 1,399, ,615,235 Maximum Number of JE Lines Minimum Number of JE Lines Average Number of JE Lines Maximum JE Amount (Total of Debits) 94,590,885,783 1,632,081,646 94,590,885,783 Minimum JE Amount (Total of Debits) JE With Missed UserID JE Missed Description Rounded Line Item ('000) Seldom Used Account GL Accounts with <50 unique document numbers vs. Total Used 0% 7% 4% 3% 100% JE Missed User ID 93% JE Missed Desc 96% Rounded Line Item 97% Seldom Used Account Remainder Remainder Remainder Remainder Rapid analysis of all journal entries, and advanced tools to identify those journal entries indicating additional consideration by our professional standards. 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

12 Data Powered Testing ERP-enabled Audit Practical Examples PROCEDURES IMPACT ON THE AUDIT BENEFITS TO THE CLIIENT 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 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

13 Data Powered Testing ERP-enabled Audit Practical Example Revenue and Accounts Receivable Sales Three-way Match [G1iv] Three-way match [G1iv] Period Revenue per Subledger Not subject to Three way Match Revenue Subject to Three-Way Match No Differences Differences Differences Due to Missing Data Sales Three Way Match 1.1% 6.1% Expressed in USD 000 Eight Months From April 01, 2013 to November 30, , ,463 11, No differences Missing data Differences % of Revenue 100.0% 2.0% 98.0% 91.0% 6.1% 1.0% Unit Price on Sales Order Invoice Amount Quantity Per invoice Unit Price on Invoice Quantity Per Goods Delivery Notes Price Difference Sales Order (DC) to Invoice per Item Extended Price Difference 0 99, , , , Total Price Difference 500, Amount in $000 s 14,000 12,000 10,000 8,000 6,000 4,000 2, ,713 Gross Sales Gross Margin 8, , % Sales General Information Eight Months from Apr 1, 2013-Nov 30, ,175 7, ,000 Eight Months from Apr 1, 2012-Nov 30, 2012 Net Sales Gross Margin Percentage Percentage 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

14 Completion - KPIs Completion Welcome to KPI Benchmarking- KPIs Dashboard (continued) 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 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

15 The KPMG Audit Powered by Data & Analytics Security of data will remain a key issue going forward Extensive engagement with regulators and clients toward a common goal Auditors 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, supply chain, forensic) 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

16 How Does this Impact the Potential KPMG Professional? Data and Analytics How Does this Impact the KPMG Professional? 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. And in most instances, we will need to evolve and refocus our efforts to other activities such as extracting, cleansing, and evaluating the data being collected, as well as addressing anomalies that require investigation. Roger O Donnell Partner Global Head of Data & Analytics - Audit 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

17 How Does this Impact the Potential KPMG Professional? Technical Skills Business Process Acumen Basic computer programming knowledge Knowledge of ERP architecture Soft Skills Creative thinking over the use of data Analytical mindset Interest in adding client value to the audit 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

18 KPMG Audit Powered by Data & Analytics Questions 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

19 Contacts Corbin Neiberline Managing Director, KPMG LLP (202) Timothy Hayes Senior Manager, KPMG LLP (202) Restriction on Disclosure and Use of Data This document contains confidential or proprietary information of KPMG LLP, the disclosure of which would provide a competitive advantage to others; therefore, the recipient shall not disclose, use, or duplicate this document, in whole or in part, for any purpose other than recipient s intended use 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 The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.