JETA Contents
Volume 2 - published August 2005
- A Fuzzy Logic Approach to Assessing Materiality
Authors: Christie L. Comunale and Thomas R. Sexton
Pages: 1-16
Abstract
Auditors may encounter misstatements during the course of an audit, each of which requires a binary materiality assessment. We propose a fuzzy expert system approach that assesses materiality as a continuous characteristic by allowing a misstatement to possess a degree of materiality between 0 and 1. This potentially allows the auditor more flexibility and precision in materiality assessment, and greater insight regarding subsequent testing and investigation. We demonstrate that a fuzzy expert system can help the auditor incorporate qualitative factors into the materiality assessment of each misstatement and identify which misstatements are most worthy of further investigation. The auditor may compare the materiality assessments of all misstatements to plan an audit strategy. By providing a formal model structure, the fuzzy expert system formalizes and documents the materiality assessment process. This may facilitate better communication within the audit team and with the client, and enhances process consistency across auditors, engagements, and years.
Link to the full text of this article here.
- Analytical Procedures: A Data Envelopment Analysis Approach
Authors: Ehsan H. Feroz, Sungsoo Kim & Raymond L. Raab
Pages: 17-31
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 anomalies and to assess the reasonableness of financial statements. DEA-based analytical procedures can provide consistent and reliable red flags and benchmarks for auditors to compare a client to other firms in the same 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 for DEA as an analytical procedure.
Link to the full text of this article here.
- An Investigation of Knowledge-Based Systems' Use to Promote Judgment Consistency in Multicultural Firm Environments
Authors: Vicky Arnold, Nicole Clark, Philip A. Collier, Stewart A. Leech and Steve G. Sutton
Pages: 33-59
Abstract
Knowledge-based systems (KBS) have long been advocated as a method for promoting consistency in judgment across professional service organizations such as accountancy firms. Recent movements toward unification of standards for accounting, auditing and insolvency have increased the pressure on these firms to further enhance judgment consistency across firm locations throughout the world. Yet, little is known about the usefulness and/or impact of KBS in promoting judgment consistency in multicultural firm environments. This paper reports the results of a study that examines the use of a KBS in a cross-cultural experimental environment. Participants included 239 insolvency professionals from Australia and Singapore representing two diverse cultures - i.e., Anglo-American and Chinese, respectively. The results of the study provide some evidence in support of both the perceived differences in focus on positive versus negative information and on the influence of a KBS in reducing these differences. However, the KBS did not significantly close the differences in judgment between the two sets of insolvency professionals.
Link to the full text of this article here.
- Merger Premium Predictions Using a Neural Network Approach
Authors: Tara J. Shawver
Pages: 61-72
Abstract
Over 80 percent of mergers fail to achieve projected financial, strategic, and operational synergies (Marks and Mirvis 2001). It is critical for management to find accurate models to price merger premiums. Management has an interest to protect stakeholders by acquiring companies that can add value to their investments at the most favorable price. Published studies in the area of pricing mergers have not attempted to use expert systems in the decision-making process. This paper is the first of its kind that describes the development and testing of neural network models for predicting bank merger premiums accurately. A neural network prediction model provides a tool that can filter through noise and recognize patterns in complicated financial relationships. The results confirm that a neural network approach provides more explanation between the dependent and independent financial variables in the model than a traditional regression model. The higher level of accuracy provided by a neural network approach can provide practitioners with a competitive advantage in pricing merger offers.
Link to the full text of this article here.
- ABB Industries: Implementing SAP's ABC
Authors: Daniel E. O' Leary
Pages: 73-85
Abstract
ABB Industries was told to implement activity-based costing (ABC) for costing in their consolidated reports sent to ABB Group, their parent firm. To meet this need, they chose to implement ABC using SAP's R/3. For two of nine product lines, parallel ABC was developed. Unfortunately, the version of ABC needed to generate financial statements, operational ABC, would not be available until a later release of the software. While ABB Industries waits for the next release, key personnel associated with the implementation are being offered alternative internal and external opportunities. Further, in order for ABB Industries to implement the operational ABC, the entire firm must implement a new version of SAP's R/3.
Link to the full text of this article here.
Do please feel free to contact us with any queries or questions you have about anything you find on these pages - the section's webmanager, Andy Lymer, can be contacted on a.m.lymer@bham.ac.uk.
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