Data Mining for Auditing Essay Example | Topics and Well Written Essays - 2000 words

Data Mining for Auditing - Essay Example However, with increased use of databases, comes a new challenge: how to make sense of the abundant data Auditors are overwhelmed with massive collection of data. Omnipresent personal computers, low cost multi-gigabyte disks, ubiquitous electronics and new generation database languages have made it very simple for companies to capture data and save it without any worries of loss of space, time or computing power. This benefit of databases to companies is also the bane to auditors. However, the effective utilisation of one robust technology will bring sense to the chaos generated by databases: Data Mining. Data Mining aims at converting data to sensible information. It intends to extract information from the data repositories in a manner as needed by the auditor. The auditors, with the help of data mining techniques can 'mine' for the relevant information needed to perform their assessment without having to bother about the irrelevant data. This report aims at analysing the benefits brought about by applying data mining technologies to auditing. As a part of the process of analysing the benefits, the paper also presents the technological overview of data mining, the problem faced by auditors and the tools and techniques data mining provides to alleviate the problems. Auditing: An Introduction to the Problem Domain Auditing is commonly defined as the process of accumulating and analysing information to detect the degree of conformance of the information with the pre-set criteria (Arens & Loebbecke, 2000). During its inception, auditing was an activity performed only to check financial compliance with the goals set. However today, it is an activity that is carried rigorously across all the domains of an enterprise. Auditing involves analysing the information from all departments including manufacturing, operations, human resource, finance and other verticals. Generally, companies hire independent auditors from outside the company to ascertain whether the statements of the company are in conformity with the generally accepted accounting principles (GAAP). However auditing is facing very tough challenges. The demise of major companies such as Enron and Anderson are live examples to limn the depth of negative impact that can be brought about by improper auditing. The complexity of business transactions coupled with investor's complex business practises to gain more profits makes the job of an auditor very challenging (Vijayalakshmi, 2003). To ensure that an objective assessment is reached, an auditor must be presented with data at all levels. The company creates huge databases of statements, records and other data that an auditor is expected to analyse. However due to timing and cost constraints, auditors can not examine every detail behind the stacks of records. With massive improvements in technology such as the development of Supply Chain Management Systems and Enterprise Resource Planning applications, the amount of business transactions performed everyday has grown exponentially. Since, in most cases, a company hires an