ADA - Audit Data Analytics Descriptive Analytical Techniques Questions and Answers — Questions and Answers
Question 1: An auditor is analyzing a large dataset of journal entries to identify unusual patterns. Which of the following is a classic descriptive analytical technique used to detect anomalies by examining the frequency distribution of leading digits in numerical data?
- Regression Analysis
- Benford's Law (Correct answer)
- Clustering Analysis
- Time Series Forecasting
Correct answer: Benford's Law
Benford's Law is a descriptive analytical technique that states the leading digits in many naturally occurring sets of numerical data follow a specific, predictable distribution. Auditors use it to identify anomalies or potential fraud when the observed digit frequencies deviate significantly from the expected pattern.
Question 2: During the risk assessment phase of an audit, an auditor calculates the mean, median, standard deviation, and range for employee travel and expense claims. These calculations are examples of which type of descriptive analytical technique?
- Trend Analysis
- Data Profiling
- Statistical Summaries (Correct answer)
- Segmentation
Correct answer: Statistical Summaries
Calculating metrics like mean, median, standard deviation, and range are fundamental statistical summaries. In auditing, these descriptive statistics help to understand the characteristics of the data, identify the center and spread, and spot potential outliers for further investigation.
Question 3: Which of the following questions is best answered using descriptive analytical techniques?
- Why did sales in the Northeast region decline last quarter?
- What is the total amount of accounts receivable over 90 days past due? (Correct answer)
- What is the probability of a specific customer defaulting on their loan next year?
- What is the optimal level of inventory to minimize holding costs?
Correct answer: What is the total amount of accounts receivable over 90 days past due?
Descriptive analytics focuses on summarizing historical data to answer the question 'What happened?'. Calculating the total of overdue accounts receivable is a direct summary of past events. The other questions relate to diagnostic ('why'), predictive ('what is the probability'), and prescriptive ('what is optimal') analytics, respectively.
Question 4: An auditor is conducting a review of a company's procurement process. They use data analytics to examine all purchase transactions for the past year and generate a report that groups purchases by vendor, highlighting the total amount spent per vendor. This process is an example of:
- Predictive Modeling
- Diagnostic Analysis
- Prescriptive Analytics
- Data Aggregation and Summarization (Correct answer)
Correct answer: Data Aggregation and Summarization
Data aggregation and summarization are core descriptive analytical techniques. By grouping transactions by vendor and calculating totals, the auditor is summarizing historical data to provide a clear picture of past activities, which is the primary goal of descriptive analytics.
Question 5: When performing descriptive analytics, an auditor might use measures of central tendency and measures of dispersion. Which of the following are both measures of dispersion?
- Mean and Median
- Range and Standard Deviation (Correct answer)
- Mode and Variance
- Mean and Standard Deviation
Correct answer: Range and Standard Deviation
Measures of dispersion describe the spread or variability of a dataset. The range (difference between the maximum and minimum values) and standard deviation (a measure of the amount of variation from the mean) are both key measures of dispersion. Mean, median, and mode are measures of central tendency.
Question 6: An audit team is analyzing quarterly revenue figures for the past five years to identify any unusual fluctuations or patterns. They plot the revenue for each quarter on a line chart to visualize the changes over time. This technique is best described as:
- Anomaly Detection
- Regression Analysis
- Trend Analysis (Correct answer)
- Correlation Analysis
Correct answer: Trend Analysis
Trend analysis is a descriptive technique used to examine how key metrics change over time to identify patterns, seasonality, or unusual movements. Plotting revenue data over a five-year period is a classic example of using trend analysis to understand historical performance.
ADA - Audit Data Analytics Descriptive Analytical Techniques Questions and Answers
An auditor is analyzing a large dataset of journal entries to identify unusual patterns.
Which of the following is a classic descriptive analytical technique used to detect anomalies by examining the frequency distribution of leading digits in numerical data?