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DATA THE NEW OIL

Data in the 21st Century is like Oil in the 18th Century: an immensely, untapped valuable asset. Like oil, for those who see Data’s fundamental value and learn to extract and use it there will be huge rewards.

We’re in a digital economy where data is more valuable than ever. It’s the key to the smooth functionality of everything from the government to local companies. Without it, progress would halt.

It is amusing to look at data the way we look at oil. However, there are many similarities between them. One, in raw form theyre not that useful as they are in a filtered concentrated form. Two, they require processing to segregate the different components and three, once the intended component is filtered it is extremely valuable.

It was actually Clive Humby, UK Mathematician and architect of Tesco's Clubcard, who is widely credited as the first to coin the phrase back in 2006. Here is what Clive Humby said about data being the new oil: “Data is the new oil. Like oil, data is valuable, but if unrefined it cannot really be used.

The concept behind “data is the new oil” is that just like oil, raw data isn't valuable in and of itself, but, rather, the value is created when it is gathered completely and accurately, connected to other relevant data, and done so in a timely manner.

The Enron scandal in 2001 was largely a result of bad data. Enron was once the sixth-largest company in the world. A host of fraudulent data provided to Enron’s shareholders resulted in Enron’s meteoric rise and subsequent crash. An ethical external auditing firm could have prevented this fraud from occurring.

Sometime back a hacker group claimed to have breached the security in the Aadhar database and had extracted data which was beyond confidential. That has cost the people lot of stress, anxiety and lack of faith in the establishment.

IBM estimates that bad data costs the US economy roughly $3.1 trillion dollars each year. A separate research study from Experian Data found that bad data has a direct impact on the bottom line of nearly 90% of all American companies. Their numbers were similar to the report from IBM that showed that US organizations believe on average that 32% of their data is inaccurate. They found that the average loss from bad data accounted for 12% of the company’s overall revenue.

The value of data is usually neglected in the Indian business scenario. Data security directly leads to data integrity. We have seen the recent cosmos bank and similar events which resulted in even going concern issues for corporations. It seems the value of data is realised by us only when it is lost. Majority of companies have an official email ID either on google, yahoo or other popular domains rather than on an owned domain.

It is high time that with all the conventional scope of audit, may it be statutory or internal audits, Information technology general controls should now become an integral part of the audit exercise. Better to have things checked pre-emptively rather than to be sorry about it later.

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Revenge Spending

What is revenge spending?

After more than a year of fear, rising death rates, and daily infection surges, there’s some good news. COVID-19 infection rates and deaths are down, vaccines are rolling out, and the U.S. economy is opening back up. As restrictions continue to ease, many people are ready to toss caution to the wind and celebrate by splurging on anything and everything. This urge, commonly known as “revenge spending,”

Is revenge spending unusual or new?

The answer is in the negative. revenge spending, or “revenge buying,” as it’s also known, has been around for decades. It dates back at least to the 1980s, when a post–Cultural Revolution China opened up to luxury retailers and demand surged.

What do the statistics suggest?

It typically follows an unprecedented traumatic event, like the COVID-19 pandemic. I got the following from Investopedia, “Many of those who were able to stash away cash over the past 12 months have emerged with a strong impulse to make up for lost time and embrace a you-only-live-once attitude. Bloomberg Economics estimated that as of January 2021 Americans were sitting on roughly $1.7 trillion of excess savings accumulated during the pandemic. That’s a lot of cash to play with.

Nearly half of those surveyed in February 2021 by Charles Schwab said they were eager to get back to pre-pandemic living and spending, with 24% keen to make up for lost time. Among the biggest splurges on the list were travel (24%), dining out at a fancy restaurant (21%), and hosting a party (15%).

Now, as of June 7, 2021, with 42.1% of Americans fully vaccinated and 51.7% with at least one dose, there has been a real surge in travel. The federal government’s Transportation Survey Administration’s checkpoint travel number for June 7, 2021, was just over 1.8 million people, up from about 430,000 one year before, nearly 4.5 times greater.

The pandemic has also resulted in a greater focus on mental and physical health, which may signal a shift in how consumers approach their urge for revenge spending. According to the Schwab survey, 69% of respondents said mental health had become a larger priority, followed by relationships (57%), finances (54%), and physical health (39%). This shift in priorities could result in higher spending on experiences rather than products. “We’re already seeing workers who were robbed of their vacations over the past 15 months starting to upgrade their vacation spending for this year,” said NPD Chief Retail Analyst Don Unser in a March 2021 statement.

Even with the increased spending on travel and dinners out, retail sales are also making a comeback. For the three-month period ending on April 30, 2021, retail and food service sales were up 27% from the same period a year ago, with the biggest gains seen in clothing, sporting goods, and home furnishings. Separately, the National Retail Federation expects retail sales to gain momentum as more people get vaccinated, predicting a jump for 2021 in the vicinity of 6.5% to 8.2%”

How is it a challenge for auditors?

Any auditor has to have a two pronged approach – one, the regulatory prescription and second, adhering to the internal controls and policies established by the entity. A revenge spending streak could be a major internal control/ policy issue for the auditor. It is not about commenting on whether the spending was justified or not, it is more about asking the right questions. Questions which address the reason of spending, whether it is happening just because there has been a dry spell in the discretionary spending department.

Asking the right question is a tough thing that many auditors would not be inclined to do. I think we should beware of such trends and ask questions from a propriety perspective.

The public at large doesn’t question the work done by auditors when things are going good but at the first signs of trouble the auditor is pulled up for questioning, such is our profession. It carries a lot of trust on the part of the public and users of financial statements and a betrayal of the trust by the auditor hurts everyone involved.

Post pandemic picture painted by the management of any company is going to be a very rosy one. At times even an unrealistic one. It’s now that we need to use our professional scepticism even more than before. In some cases, yes there could be a few cases where the actual results are much higher than today (e.g. Apparently Lamborghini said it’s almost sold out for the year as an easing pandemic unleashes a free-spending attitude among consumers confined to their homes for months), but it may not be the case with everyone in the free market.

The revenge spending streak is expected to hit India after China. It is better to be proactively ready when the clients show these symptoms rather than reactively keep improvising once we are in the revenge spending timeframe.

What do experts suggest?

When it comes to spending your way out of a pandemic, take it slow.

Create a budget. No matter how big or small, know where your money is going and how much extra you will have left over.

Make it a point to pay in cash to ensure that you aren’t spending more than you can afford.

Before you click that checkout button, consider how many items you really need versus how many you want.

Set money aside for future big-ticket wish-list items, such as a house, a big vacation, and retirement. Also, don’t forget the money lessons learned during the pandemic.

Create (or replenish) an emergency savings fund before indulging in a buying spree.

Pay down any high-interest credit card debt that may have been run up during the pandemic.

If you had to dip into your retirement savings, work on replenishing them.