Ehsan H. Feroz
University of Minnesota, Duluth
Sungsoo Kim
Rutgers, The State University of New Jersey
Raymond L. Raab
University of Minnesota, Duluth
Abstract: In this paper, we demonstrate the usefulness of Data Envelopment Analysis (DEA) as an analytical procedure for auditors especially in the planning stage of the audit to determine the extent of audit and to assess the preliminary risk level of the client. We believe that DEA can also be used in the overall review stage to detect any anomaly and to see the reasonableness of financial statements. DEA, as compared to ratio analysis, can provide a consistent and reliable measure of income efficiency of a client, as compared to other firms in the industry. We provide an illustrative use of DEA as an analytical procedure for auditing a client in the oil and gas industry. We also provide validation of DEA as an analytical procedure.
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