Automatic Formulation of the Auditor’s Opinion with AREX: With an Application to Egypt

This paper reports on research of knowledge-based systems (KBS) in auditing. It focuses on constructing, implementing, and validating a KBS that aims at helping auditors formulate their opinions on financial statements. To formulate their opinions, auditors use a “personal-judgement” approach, which is heavily depended on their experience and expertise. The approach has four drawbacks: (1) it is ineffective (2) it may lead to different decisions, (3) it suffers from personal bias, and (4) it may even generate misleading judgements. Therefore, the challenging questions are: (1) To what extent is it possible to automate the formulation of the auditor’s opinion? and (2) To what extent is a KBS effective, efficient, and acceptable as a tool to formulate the auditor’s opinion? This paper focuses on constructing, implementing, and validating a KBS, called “Auditor’s Report EXpert” (AREX), to formulate the auditor’s opinion on financial statements. The knowledge used by AREX is acquired from literature, and from practicing and academic auditors through questionnaires and in-depth interviews. The results of the validation and evaluation process (using test cases and actual auditing cases) indicate that AREX performs the auditor’s opinion task adequately. We conclude that AREX is successful and promising.

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