Data Analytics for Accounting – Richard

Vernon

Chapter 1
Data Analytics : Definition
• Data Analytics as the process of evaluating data with the purpose of
drawing conclusions to address business questions.
• Data Analytics provides a way to search through large structured and
unstructured data to discover unknown patterns or relationships.
• Data Analytics often involves the technologies, systems, practices,
methodologies, databases, statistics, and applications used to analyze
diverse business data.
• Big Data refers to datasets that are too large and complex for
businesses’ existing systems to handle utilizing their traditional
capabilities to capture, store, manage, and analyze these datasets.
• Turn data into knowledge and knowledge into value.
How Data Analytics Affect
Business
• Financial Data, Customer Data, Customer Behavior Data
• Let’s assume a brand manager at Samsung identifies that an
older demographic might be concerned with the use of a
Samsung Galaxy smartphone and the radiation impact it
might have on the brain. How might Samsung use Data
Analytics to assess if this is a problem?
How Data Analytics Affect
Accounting
• Auditing – Increase deeper auditor understanding
• Financial Reporting
• Tax
• Managerial Accounting
Auditing
Data Analytics on the audit has been growing for several years
now and has given many public accounting firms incentives to
invest in technology and personnel to capture, organize, and
analyze financial statement data to provide enhanced audits,
expanded services, and added value to their clients

external auditors will stay engaged with clients beyond the

audit. This is a significant paradigm shift
Financial Reporting

• With the use of so many estimates and valuations in financial accounting, some believe that
employing Data Analytics may substantially improve the quality of the estimates and
valuations
• How much of the accounts receivable balance will ultimately be collected? What should the
allowance for loan losses look like?
• Is any of our inventory obsolete? Should our inventory be valued at market or cost (applying
the lower-of-cost-or-market rule)? When will it be out of date? Do we need to offer a
discount on it now to get it sold?
• Assess the probability of a goodwill write-down, warranty claims or the collectability of bad
debts based on what customers, investors, and other stakeholders are saying about the
company in blogs and in social media (like Facebook and Twitter)
• scan the environment —that is, scan Google searches and social media (such as Instagram
and Facebook) to identify potential risks and opportunities to the firm
Tax
• Tax data analytics to predict future. tax data analytics
valuable for its ability to help tax staffs to predict what will
happen rather than reacting to what just did happen.
• capability to predict the potential tax consequences of a
potential international transaction, R&D investment, or
proposed merger or acquisition
 Data
Analytics
Process using
Impact Cycle
Step 1: Identify The Questions

• It all begins with understanding a business problem that needs addressing. Questions
can arise from many sources, including how to better attract customers, how to price a
product, or how to find errors or fraud.
• Are employees circumventing internal controls over payments?
• Are there any suspicious travel and entertainment expenses?
• How can we increase the amount of add-on sales of additional goods to our customers?
• Are our customers paying us in a timely manner?
• How can we predict the allowance for loan losses for our bank loans?
• How can errors be identified?
Step 2: Master the Data

• Mastering the data requires one to know what data are available and whether those data
might be able to help address the business problem. We need to know everything about
the data, including how to access, availability, reliability (if there are errors), and what
time periods are covered to make sure the data coincide with the timing of our business
problem, etc.
• Review data availability in a firm’s internal systems (including those in the financial
reporting system or enterprise systems that might occur in its accounting processes—
financial, procure-to-pay, production, order-to-cash, human resources).
• Review data availability in a firm’s external network, including those that might already
be housed in an existing data warehouse.
• Data dictionaries and other contextual data—to provide details about the data.
• Extraction, transformation, and loading.
• Data validation and completeness—to provide a sense of the reliability of the data.
Step 3: Perform Test Plan

• After mastering the data and after the data are ready (in step 2), we
are prepared for analysis. With the data ready for analysis, we need
to think of the right approach to the data to be able to answer the
question.
• Using all available data, we see if we can identify a relationship
between the response or dependent variables and those items that
affect the response (also called predictor, explanatory, or
independent variables). To do so, we’ll generally make a model,
or a simplified representation of reality, to address this purpose.
• Classification, regression, matching, clustering, grouping,
profiling,
Step 4: Address and Refine Result

• After the data have been analyzed (in step 3 of the

IMPACT cycle), the fourth step is to address and refine
results. Data analysis is iterative. We slice and dice the
data, find correlations, ask ourselves further questions,
ask colleagues what they think, and revise and rerun the
analysis. But once that is complete, we have the results
ready to communicate to interested stakeholders.
Step 5&6: Communicate Insight
and Track Outcome
• Once the results have been determined (in step 4 of the
IMPACT cycle), insights are formed by decision makers
and are communicated (the “C” in the IMPACT cycle)
and some outcomes will be continuously tracked (the
“T” in the IMPACT cycle).
• ways to communicate results, including the use of static
reports, digital dashboards, and data visualizations. Data
Analytics is especially interested in reporting results that
help decision makers see the data in an all-new way to
develop insights that help answer business questions.
Digital dashboards and data visualizations are
particularly helpful in communicating results.
• Back to Step 1