Chapter 1 Lecture
Uploaded by
John McaulayChapter 1 Lecture
Uploaded by
John McaulayCh.
1: Data Analytics in
Accounting and Business
Brandon Lock, Ph.D.
Baruch College, CUNY
Where we are now
1. Data 2. Data
3. Performing 4.
Analytics in Preparation
the Test Plan Visualization
Accounting and Cleaning
7. Managerial 8. Financial
5. Modern 6. Audit
Performance Statement
Accounting Analytics
Analytics Analytics
Objectives
• LO 1-1 What is data analytics?
• LO 1-2 How does data analytics affect business?
• LO 1-3 Why does data analytics matter to accountants?
• LO 1-4 What is the data analytics process?
• LO 1-5 What data analytic skills do accountants need?
What is Data Analytics?
LO 1-1
Data Analytics and Big Data
• Data Analytics is the process of evaluating data with the purpose of
drawing conclusions to address questions in business (and other
disciplines).
• Common data analytics tasks include: data cleaning and
manipulation, summarization, estimation, prediction, and
visualization
• Effective Data Analytics provides a way to search through large
structured and unstructured data to identify useful patterns or
relationships.
What is Big Data?
Big Data refers to datasets which are too large and complex to be analyzed
traditionally.
The typical V ’s of Big Data:
1. Volume refers to scale or size
2. Velocity refers to frequency and speed
3. Variety refers to different types
4. Veracity refers to data uncertainty (not in textbook)
Source: http://www.ey.com/gl/en/services/advisory/ey-big-data-big-opportunities-big-challenges
How does data analytics
affect business?
LO 1-2
Demand for Data Analytics in Business
• 85% of CEOs put a high value on Data Analytics.
• 80% of CEOs place data mining and analysis as the second-most important
strategic technology.
• Business analytics tops CEO’s list of priorities.
• Data Analytics could generate up to $3 trillion in value per year.
Applications are wide and varied
• Managerial applications: financial, customer, operational, organizational
performance
• Applications for accountants, auditors, investors, tax planners, regulators,
etc.
Why does data analytics
matter to accountants?
LO 1-3
How does data analytics affect auditing?
• Data analytics enhances audit quality through enhanced audits,
expanded services, and added value to clients, including beyond the
audit
Examples
• Risk assessment (e.g., identifying potentially fraudulent transactions)
• Conducting population testing (rather than only sampling)
• Automating manual tasks (e.g., cash reconciliations)
• Compliance monitoring activities (e.g., SEC/IRS filings)
• Continuous auditing
How does data analytics affect financial
reporting?
• Developing better accounting estimates
• For example: Estimates of collectability of bad debt, goodwill
write-downs, warranty claims, etc.
• Managers can better understand the business environment using data
analytics and alternative datasets (e.g., social media)
• For example: identifying risks and opportunities related to its
competitors, customers, or suppliers.
How does data analytics affect tax
planning?
• Tax strategy and planning
• Analyzing the tax consequences of international transactions,
investment, mergers and acquisitions
• Better organization of tax tables and other tax data
What is the data
analytics process?
1-4
The IMPACT model
1. Identify the questions Identify the
questions
2. Master the data
Track Master the
3. Perform the test plan outcomes data
4. Address and refine results
5. Communicate insights
6. Track outcomes Communicate
insights
Perform test
plan
Address and
refine
Exhibit 1-1 The IMPACT Cycle results
Step 1: Identify the Questions
What are the business problems that need to be addressed?
Examples
• Are our customers paying us in a timely manner?
• How can we increase the amount of add-on sales of additional goods to our
customers?
• Are there any suspicious travel and entertainment expenses?
• How can we predict the allowance for loan losses for our bank loans?
• How can we find transactions that are risky in terms of accounting issues?
Step 2: Master the Data
Understand what data are available and how they relate to the problem.
Do we have the right data?
• Data available from internal ERP systems (e.g., Financial Reporting, CRM, Supply Chain)
• Data available from a firm’s external network (e.g., data warehouse)
• Data dictionaries give us details about data characteristics
Extraction, transformation, and loading (ETL)
• Data preparation and scrubbing - Data Analytics professionals estimate that they spend
50-90% of their time cleaning data so it can be analyzed
• Data validation and completeness – ensuring the data is complete and reliabe
• Data normalization – to reduce data redundancy and improve data integrity
Step 3: Perform the Test Plan
Select an appropriate statistical
model to explain or predict a
target variable.
• Regression
• Classification
• Clustering
• Profiling
• Link prediction
Step 4: Address and Refine Results
• Identify issues with the analyses, possible issues, and refine the model
• Ask further questions
• Explore the data
• Re-run analyses
Step 5: Communicate Insights
• Communicate effectively
using clear language and
visualizations:
• Dashboards
• Static reports
• Summaries
• Recommendations
Step 6: Track Outcomes
Follow up on the results of the analysis.
• How frequently should the analysis be performed?
• Have the analytics changed?
• What are the trends?
Discussion: How might data analytics be used to
analyze a company’s overtime costs?
Identify the Questions: How can we reduce overtime costs?
Master the Data: What data would we need to analyze this?
Perform the Test Plan: What determines high overtime costs?
• What variables predict overtime costs? Growing demand,
seasonality, understaffing of specific departments or offices, outlier
employees?
Address and Refine the Results: How can we improve the results?
Communicate Insights/Recommendations: How could we reduce
overtime costs?
Track Outcomes: How should we follow up on our analysis?
What data analytic skills
do accountants need?
LO 1-5
Accountants need to be able to:
• Articulate business problems
• Communicate with data scientists and managers
• Draw appropriate conclusions based on data and make
recommendations
• Present results in an accessible manner
Seven Skills for Analytic-Minded
Accountants
1. Develop an analytics mindset
2. Data scrubbing and preparation
3. Recognizing and understanding data quality
4. Descriptive data analysis
5. Data analysis through data manipulation
6. Define and address problems through statistical data analysis
7. Data visualization and reporting
We will focus on learning these skills and applying them to accounting
and business in this course.
Summary
• Data Analytics is the process of evaluating data with the
purpose of drawing conclusions to address business
questions.
• Data analytics has a wide variety of applications related to
accounting and business, including auditing, financial
reporting, and tax planning
• The IMPACT cycle is a guide for applying data analytics by
• Identifying questions
• Mastering the data
• Performing the test plan
• Addressing and refining results
• Communicating results
• Tracking outcomes