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The Auditor’s Assessment of Fraud Risk: A Fuzzy Logic Approach
Christie L. Comunale, Long Island University - C.W. Post Campus
Rebecca L. Rosner, Long Island University - C.W. Post Campus
Thomas R. Sexton, Stony Brook University
ABSTRACT. SAS 99 has limitations that may lead to ineffective implementation. Specifically, auditors use fraud risk indicators and judgment to decide whether a fraud risk factor exists. This implies a binary assessment of each fraud risk factor without consideration of the extent to which it exists. We believe that this is an oversimplification. In this paper, we demonstrate the application of a fuzzy logic expert system to the assessment of fraud risk. The system works by allowing the auditor to input data regarding the presence or absence of each fraud risk indicator and employs the principles of fuzzy logic to evaluate the degree to which each fraud risk factor is present. Using the relative importance of each fraud risk factor, the system computes fraud risk associated with each type of fraud and with the six combinations of fraud type and condition. This approach has several advantages over the auditor’s current approach.
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