Chapter 1: Data Analytics for Accounting and Identifying the Questions

LO 1-1 Define Data Analytics

Data Analytics: the process of evaluating data with the purpose of drawing conclusions to
address business questions.
 Effective Data Analytics provide 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 to give
organizations the information they need to make sound and timely business decisions.
 Process of Data Analytics aims to transform raw data into knowledge to create value.

LO 1-2 Understand why Data Analytics matters to business

Data Analytics is important because it helps businesses optimize their performances. Data
Analytics could very much transform the manner in which companies run their businesses in
the near future because the real value of data comes from Data Analytics.

LO 1-3 Explain why Data Analytics matters to accountants.

Data Analytics is expected to have dramatic effects on auditing and financial reporting as well as
tax and managerial accounting. Data Analytics plays an increasingly critical role in the future of
audit. Data Analytics also expands auditors’ capabilities in services like testing for fraudulent
transactions and automating compliance-monitoring activities (like filing financial reports to the
SEC or to the IRS). Data Analytics may also allow an accountant or auditor to 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).

LO 1-4 Describe the Data Analytics Process using the IMPACT cycle.
I Identify the questions
M Master the data
P Perform test plan
A Address and refine results
C Communicate Insights
T Track outcomes

LO 1-5 Describe the skills needed by accountants.

1. Develop an analytics mindset – recognize when and how data analytics can address
business questions.
2. Data scrubbing and data preparation – comprehend the process needed to clean and
prepare the data before analysis.
3. Data quality – recognize what is meant by data quality, be it completeness, reliability, or
validity.
4. Descriptive data analysis – perform basic analysis to understand the quality of the
underlying data and its ability to address the business question.
 5. Data analysis through data manipulation – demonstrate ability to sort, rearrange,
merge, and reconfigure data in a manner that allows enhanced analysis.
6. Define and address problems through statistical data analysis – identify and implement
an approach that will use statistical data analysis to draw conclusions and make
recommendations on a timely basis.
7. Data visualization and data reporting – reports results of analysis in an accessible way
to each varied decision maker and his or her specific needs.

Summary
 With data all around us, business and accountants are looking at Data Analytics to
extract the value that the data might possess.
 Data Analytics is changing the audit and the way that accountants look for risk. Now,
auditors can consider 100 percent of the transactions in their audit testing. It is helpful
in finding anomalous or unusual transactions. Data Analytics is also changing the way
financial accounting, managerial accounting, and taxes are done at a company.
 The IMPACT cycle is a means of doing Data Analytics that goes all the way from
identifying the questions, to mastering the data, to performing data analyses and
communicating results. It is recursive in nature, suggesting that as questions are
addressed, new important questions may emerge that can be addressed in a similar
way.
 Eight data approaches address different ways of testing the data: classification,
regression, similarity matching, clustering, co-occurrence grouping, profiling, link
prediction, and data reduction.
 Data analytic skills needed by analytic-minded accountants are specified and are
consistent with the IMPACT cycle, including the following:
o Develop an analytics mindset.
o Data scrubbing and data preparation.
o Data quality.
o Descriptive data analysis.
o Data analysis through data manipulation.
o Define and address problems through statistical data analysis.
o Data visualization and data reporting.

Glossary
 Big Data: 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.
 Classification: a data approach that attempts to assign each unit in a population into a
few categories potentially to help with predictions.
 Clustering: a data approach that attempts to divide individuals (like customers) into
groups (or clusters) in a useful or meaningful way.
 Co-occurrence Grouping: a data approach that attempts to discover associations
between individuals based on transactions involving them.
  Data Analytics: the process of evaluating data with the purpose of drawing conclusions
to address business questions. Indeed, effective Data Analytics provides a way to search
through large structured and unstructured data to discover unknown patterns or
relationships.
 Data Dictionary: centralized repository of descriptions for all of the data attributes of
the dataset
 Data Reduction: a data approach that attempts to reduce the amount of information
that needs to be considered to focus on the most critical items (i.e., highest cost, highest
risk, largest impact, etc.).
 Link Prediction: a data approach that attempts to predict a relationship between two
data items.
 Profiling: a data approach that attempts to characterize the “typical” behavior of an
individual, group, or population by generating summary statics about the data (including
mean, standard deviations, etc.)
 Predictor (or Independent or Explanatory) Variable: a variable that predicts or explains
another variable
 Response (or Dependent) Variable: a variable that responds to, or is dependent on,
another
 Regression: a data approach that attempts to estimate or predict, for each unit, the
numerical value of some variable using some type of statistical model.
 Similarity Matching: a data approach that attempts to identify similar individuals based
on data known about them.

Questions
1. Big Data is often described by the three Vs, or
A. Volume, velocity, and variability
B. Volume, velocity, and variety
C. Volume, volatility, and variability
D. Variability, velocity, and variety
2. Which approach to Data Analytics attempts to assign each unit in a population into a
small set of classes (or groups) where the unit best fits?
A. Regression
B. Similarity matching
C. Co-occurrence grouping
D. Classification
3. Which approach to Data Analytics attempts to identify similar individuals based on data
known about them?
A. Classification
B. Regression
C. Similarity matching
D. Data reduction
4. Which approach to Data Analytics attempts to predict relationship between two data
items?
A. Profiling
B. Classification
C. Link prediction
D. Regression
5. Which of these terms is defined as being a central repository of descriptions for all of
the data attributes of the dataset?
A. Big Data
B. Data warehouse
C. Data dictionary
D. Data analytics
6. Which skills were not emphasized that analytic-minded accountants should have?
A. Develop an analytics mindset
B. Data scrubbing and data preparation
C. Classification of test approaches
D. Define and address problems through statistical data analysis
7. Which skills were not emphasized that analytic-minded accountants should have?
A. Data quality
B. Descriptive data analysis
C. Data visualization
D. Data and systems analysis and design
8. The IMPACT cycle includes all except the following process:
A. Perform test plan
B. Visualize the data
C. Master the data
D. Track outcomes
9. The IMPACT cycle includes all except the following process:
A. Data preparation
B. Communicate insights
C. Address and refine results
D. Perform test plan
10. By the year 2020, about 1.7 megabytes of new information will be created every:
A. Week
B. Second
C. Minute
D. Day