When will a Computer Write the Auditor's Report?

Most corporations are required by law to produce annual reports on their financial positions. These financial reports are accompanied by an auditor's report, which is an independent auditor's opinion on the fairness of the financial statements. To formulate their reports, auditors use a “personal-judgement” approach that heavily depends on their experience and expertise. This approach may be (1) ineffective and may lead to (2) different decisions, (3) personal bias, and (4) misleading judgements. These four drawbacks of a human auditor are a source of doubt and hesitation for every corporation. Therefore, the challenging question is: Can a computer do a better job? This paper focuses on the construction and implementation of a knowledge-based system, called the “Auditor's Report EXpert” (AREX), that is capable of formulating the opinion on financial statements, as expressed in the auditor's report. The knowledge used by AREX is acquired from the literature, and from a slate of practicing and academic auditors by means of questionnaires and in-depth interviews. A preliminary validation of AREX indicates that AREX is successful in performing the auditor's report task. Hence, we tentatively conclude that currently a computer program can support an auditor in his/her task. Moreover, in the foreseeable futur's reports that are effective, universal in their decisions, do not show a personal bias, and do not have misleading statements.

[1]  Randal J. Elder Mark S. Beasley Alvin A. Arens.  Auditing and Assurance Services: An Integrated Approach , 2002 .

[2]  David S. Murphy,et al.  Auditor evidence evaluation: Expert systems as credible sources , 1996, Behav. Inf. Technol..

[3]  Khaled Shaalan,et al.  KROL: a knowledge representation object language on top of Prolog , 1998 .

[4]  Mary Jane Lenard,et al.  Knowledge Acquisition and Memory Effects Involving an Expert System Designed as a Learning Tool for Internal Control Assessment , 2003 .

[5]  Bob J. Wielinga,et al.  Organizational Modeling in CommonKADS: The Emergency Medical Service , 1997, IEEE Expert.

[6]  Gregory R. Madey,et al.  The Design and Validation of a Hybrid Information System for the Auditor's Going Concern Decision , 1998, J. Manag. Inf. Syst..

[7]  O. Ray Whittington,et al.  Principles of Auditing and Other Assurance Services , 2000 .

[8]  Jacky Akoka,et al.  Expert Systems for Computer and Management Information Systems Auditing , 1997 .

[9]  Gregory R. Madey,et al.  Decision-making capabilities of a hybrid system applied to the auditor's going-concern assessment , 2001, Intell. Syst. Account. Finance Manag..

[10]  Demet Bayraktar,et al.  A knowledge-based expert system approach for the auditing process of some elements in the quality assurance system , 1998 .

[11]  Kalle Lyytinen,et al.  User participation in knowledge update of expert systems , 1997, Inf. Manag..

[12]  Nicole Clark,et al.  A validated expert system for decision making in corporate recovery , 1999, Intell. Syst. Account. Finance Manag..

[13]  Clyde W. Holsapple,et al.  Transferring auditors?? internal control evaluation knowledge to management , 2001, Expert Syst. Appl..

[14]  Bob J. Wielinga,et al.  KADS: a modelling approach to knowledge engineering , 1992 .

[15]  Philip Wallage,et al.  Principles of Auditing: An Introduction to International Standards on Auditing , 2004 .

[16]  Jacky Akoka,et al.  A knowledge-based system for auditing computer and Management Information Systems , 1996 .

[17]  Steven Hornik,et al.  Expert Systems Usage and Knowledge Acquisition: An Empirical Assessment of Analogical Reasoning in the Evaluation of Internal Controls , 1998 .

[18]  Jacky Akoka,et al.  An expert system for financial and accounting information system auditing , 1997 .

[19]  Chuleeporn Changchit,et al.  The construction of an internet-based intelligent system for internal control evaluation , 2003, Expert Syst. Appl..

[20]  Guus Schreiber,et al.  KADS : a principled approach to knowledge-based system development , 1993 .