The KPMG Audit Powered by Data Analytics A

The KPMG Audit Powered by Data & Analytics A Data & Analytics Discussion March 4, 2016 QUALITY + INSIGHT = VALUE KPMG AUDIT © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 1

AUDIT 2020: A FOCUS ON CHANGE 93% of survey respondents believe “Audit needs to better embrace technology” 58% WHAT EXTERNAL FORCE WILL BE KEY? Three-out-of-four auditors rank the audit profession as on par or behind in technology with its clients and other industries HOW WILL AUDIT TRANSFORM? 53% say Data & analytics is transforming how audits are conducted, enhancing audit quality and effectiveness say Technology has the greatest impact on the audit profession Most cited benefits of technology are 59% 58% Increased efficiency Better tools for sophisticated analysis BIGGEST CHALLENGES IDENTIFIED 66% 59% See Culture See Regulatory Environment are seen as the biggest challenges to enhancing the role of D&A in the audit. kpmg. com/us/audit Based on a survey of 151 U. S. -based respondents, including audit committee chairs and members, C-level financial executives, audit associates and accounting students. KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 2

What is Data and Analytics? Data is raw material that becomes valuable through the use of analytics. Big Data requires advanced analytics and technology to capture the value. Purchases Audit Quality Customer Data $ Risk Warnings Competitor Actions Financial Insights Machine Data Economic Factors Log Files Media $ General Ledger Controls Issue Isolation/Identification Data Transformation, Visualization & Analytics Causality Insights Process-Level Insights Automated Action Keys to Success ■ Solid handle on data available throughout the organization, enhanced with access to relevant 3 rd party data ■ Strong information management to fully access and leverage the organization’s data ■ Technology capability to transform big data into actionable data for qualitative and quantitative analytics Sales Call Center KPMG AUDIT Better Informed Judgement QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 3

How Data and Analytics is Used in Business has fundamentally changed – an organization’s competitors (known and unknown) are harnessing data to drive growth and profitability now Keys to Success ■ Understanding the non-obvious connections in the complex, global and ever-changing economy Online Videos: Effect on In-store video rentals with recommendation engines and easy delivery Insurance Companies: Impact of dynamic pricing for profitable customer acquisition ■ Dynamic analytics solutions improve agility. These solutions: – Automatically identify relevant changes in the constantly changing environment – Account for the effects of those changes on your business – Provide sound decision support within this context Chip Manufacturers: Impact on auto manufacturer supply base during the Great Recession KPMG AUDIT Smart Thermostat Technology: Imminent impact on utility company profitability ■ Holistically address the growth, efficiencies, and risk mitigation agendas QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 4

The KPMG Audit Powered by Data & Analytics KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 5

The KPMG Audit Powered by Data & Analytics HISTORICAL MANUAL THAT WAS PAPER-DRIVEN AUDIT ANALYSIS SNAPSHOT OF A SMALL % OF SELECT TRANSACTIONS DATA IN A POPULATION SAMPLE WITH ANALYSIS LIMITED TRANSACTI ON COVERAG E KPMG AUDIT CURRENT OVER 5 YEARS OF EXPERIENCE WITH FUTURE TECHNOLOGY INVESTMENTS ENABLES 100% DATA ANALYTICS DATA DRIVEN TECHNOLOGY DATA ANALYSIS 2 BILLION+ POPULATION SAMPLING QUALITY ENHANCED USINGTECHNOLOGY + DATA ENABLES ANALYSIS FULL POPULATIONS PATTERN DATA ANALYSIS OF ASSESSMENT OUTLIERS + ANOMALIES BENCHMARKING INTERNAL • INDUSTRY • PEER IDENTIFY PROCESS PERFORMANCE IMPROVEMENTS USE OF AUTOMATION BUSINESS TRENDS QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 6

The KPMG Audit Powered by Data & Analytics KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 7

The KPMG Audit Powered by Data & Analytics RISK ASSESSMENT External data Company data PLANNING & RISK ASSESSMENT D&A is used throughout the audit process KPMG AUDIT Account pairing Predictive account analysis Financial flow visualization Automated audit procedures ERP-enabled audit procedures KPIs COMPLETION (ROLLFORWARD AND FINAL TESTING) INTERIM TESTING Automated audit procedures ERP-enabled audit procedures Journal entry deep dive KPIs Company results Actionable Insight Reporting Issuance of Audit Opinion Historical data file Created from prior year’s Risk Assessment, Account/Assertion and Rollforward Routine QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 8

Data Powered Planning Demonstration Data Powered Planning Financial Flow Visualization shows the general ledger flow of transactions to help rapidly identify manual “risk points” in financial recording and reporting processes $241, 578. 13 $12, 713, 383. 50 Revenue. S Trade accounts receivable, net. S $4, 619, 94. 22 $3, 257, 078. 03 Other receivable. S $135, 416. 71 Cash and cash equivalents $6, 685. 64 $95, 639. 35 Trade accounts payable $4, 720. 63 $509, 591. 03 Revenue KPMG AUDIT Balance Sheet QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 9

Data Powered Testing - Journal Entry Deep Dive Interim Testing Rapid analysis of all journal entries, and advanced tools to identify those journal entries indicating additional consideration by our professional standards. KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 10

Data Powered Testing – ERP-enabled Audit Practical Examples PROCEDURES ENHANCEMENTS TO AUDIT QUALITY BENEFITS TO YOU Revenue and Accounts Receivable Identifies discrepancies in price and quantity between invoices, sales orders and shipping documentation Identifies stock-outs and customer orders outpacing shipped products Segregation of Duties Pinpoints areas of increased risk by identifying incompatible duty assignments and specific transactions where such duties occurred Identifies process improvement opportunities related to users having the ability to perform two or more incompatible duties and specific transactions that could warrant management attention (e. g. , process, control or business opportunity improvement) Fixed Assets Analyze fixed asset sub -ledger for changes to in -service dates, useful life and salvage value Identifies changes that might be an opportunity to improve or update accounting policies, procedures and processes KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 11

Segregation of duties analysis Conflicting authorization used in purchasing transactions KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 12

Segregation of duties analysis (continued) Conflicting authorization used in purchasing transactions Potential risk where 7 users posted $10 million in transactions with conflicting authorizations: goods/service receipt entry, A/P invoice entry, and payment approval After investigating the underlying transactions and discussing with the client, we may conclude there is little or no risk here. The business may wish to streamline authorizations and eliminate a potential control deficiency related to the number of individuals with conflicting duties. KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 13

Completion – KPIs obtained from KPMG’s proprietary databases and publically available information are used to benchmark companies across their industry providing insight into operational and financial risks KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 14

The KPMG Audit Powered by Data & Analytics Security of data will remain a key issue going forward Engagement with standard setters, regulators and clients toward a common goal Universities and auditors alike must embrace this evolved approach to understanding a client The future will require deeper training in new areas Understanding of non-traditional disciplines (IT, risk management, statistics, forensic) KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 15

The KPMG Audit Powered by Data & Analytics “Bringing our D&A capabilities to the audit is an evolution, not a revolution, and the delivery of the audit will transform over time. Our expectation is that audit professionals can deliver the most value not only by focusing on individual tools or the extraction of data, but especially on the application of professional judgment to the results of the D&A capabilities. This means our people will investigate and understand the business reasons behind identified anomalies and exceptions and will make the appropriate judgments during the audit based on these results. ” Roger O’Donnell, Partner Global Head of Data & Analytics – Audit KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 16

KPMG Audit Powered by Data & Analytics Questions KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 17

David Seay Partner Kansas City Audit Practice Leader Michael Remmert Manager Kansas City Audit Practice The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. The perspectives of survey respondents do not necessarily represent the views of KPMG LLP. www. kpmg. com © 2015 KPMG LLP, a Delaware limited liability partnership and the U. S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 338246 The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. QUALITY + INSIGHT = VALUE KPMG AUDIT QUALITY + INSIGHT = VALUE © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 338246 18