Article

How automated data transfers can affect financial reporting risks

Oct. 26, 2023 · Authored by Max Jasper and Spencer Roundy

Every data interface poses a risk to the accuracy and completeness of financial reporting. After completing a risk assessment, each risk of material misstatement identified should be adequately controlled to reduce the risk of misstatement arising from the interfaces to an acceptably low level.

An organization using different software solutions might create centralized data repositories to make the user experience easier.

They may also have different software solutions that need to communicate and share data directly between software solutions. Organizations might automate repetitive processes of manual data transfers to boost efficiency, too.

Risk assessment in data transfers

Companies with automations transferring data from one system to another need a framework to identify risks of material misstatement to financial statements.

All data transfers share a single objective — to be transferred without error. Auditing terms define these as assertions of completeness and accuracy.

Completeness. No data lost during the transfer
Accuracy. Data is unaltered in the transfer

When assessing the likelihood and magnitude of misstatements to identify risks of material misstatement, it’s important to understand how IT affects the flows of transactions.

Understanding the technical setup of an interface isn’t critical, but understanding the flow of data through your systems is.

With each data transfer lies a risk that the data will be inaccurate or incomplete. Partner with your IT group to identify and assess those risks.