Data Mining: a Three-Step of Real-Time Audit Paradigm

 
 
 
  • Abstract
  • Keywords
  • References
  • PDF
  • Abstract


    One problem in business is the aspect of reporting through the process of financial audit. The problem with conventional audit is highlighted in this research through literature review of Statement of Auditing Standards (SAS) regarding to the issues of (1) risk assessment, (2) sampling methods, and (3) going concern analysis. This research further describes all these issues in the light of efficient audit process. The method used is exploratory, engaging comprehensive literature review from the perspectives of forensic accounting and information system. The output is to build a three-step financial audit paradigm embedding (1) exploratory data analysis and descriptive modelling in risk assessment, (2) predictive and association analysis in sampling, and (3) grounded professional judgement in going concern analysis.

     

     


  • Keywords


    Financial Audit, Real-Time Management, Risk Assessment, Audit Sampling, Information System, Data Mining, Fraud, Audit Efficiency.

  • References


      [1] Perols JL & Lougee BA (2011), The relation between earnings management and financial statement fraud. Advances in Accounting 27(1), 39–53. https://doi.org/10.1016/j.adiac.2010.10.004.

      [2] Maxwell SM, Hazen EL, Lewison RL, Dunn DC, Bailey H, Bograd SJ, Crowder LB (2015), Dynamic Ocean Management: Defining and Conceptualizing Real-Time Management of the Ocean. Marine Policy. https://doi.org/10.1016/j.marpol.2015.03.014.

      [3] Amrouss A, El Hachemi N, Gendreau M & Gendron B (2017), Real-Time Management of Transportation Disruptions in Forestry. Computers and Operations Research 83(March), 95–105. https://doi.org/10.1016/j.cor.2017.02.008.

      [4] Choe S, Park J, Han S, Park J & Yun H (2017), A Study on the Real-Time Management and Monitoring Process for Recovery Resources Using Internet of Things. International Research Journal of Engineering and Technology (IRJET) 4(3), 2634–2639. Retrieved from https://irjet.net/archives/V4/i3/IRJET-V4I3673.pdf.

      [5] Eflin JT, Glennan S & Reisch G (2015), The Nature of Science: A Perspective from Philosophy of Science. Journal of Research in Science Teaching 36(September) 107–116. https://doi.org/10.1002/(SICI)1098-2736(199901)36.

      [6] Brennan NM & Solomon J (2008), Corporate Governance, Accountability and Mechanisms of Accountability. Accounting, Auditing and Accountability Journal 21(2008), 885–906.

      [7] Eghlaiow S, Wickremasinghe G & Sofocleous S (2012), a Review of the Empirical Determinants of Audit Delay. Corporate Ownership & Control, 9(2), 511–514. Retrieved from http://www.virtusinterpress.org/IMG/pdf/10-22495_cocv9i2c5art5.pdf.

      [8] Fafatas SA (2010), Auditor conservatism following audit failures. Managerial Auditing Journal 25(7), 639–658. https://doi.org/10.1108/02686901011061333.

      [9] Moyes GD, Lin P, Landry RM & Vicdan H (2006), Internal Auditors’ Perceptions of the Effectiveness of Red Flags to Detect Fraudulent Financial Reporting. Journal of Accounting, Ethics & Public Policy 1 1–28.

      [10] Kranacher M-J (2006), Financial Statement Complexity: A Breeding Ground for Fraud. The CPA Journal 76(9), 80. Retrieved from http://search.proquest.com.ezaccess.library.uitm.edu.my/docview/212324644?accountid=42518.

      [11] Brennan NM & Mcgrath M (2007), Financial Statement Fraud: Some Lessons from US and European Case Studies. Australian Accounting Review 17(July), 49–61.

      [12] Bedard JC & Johnstone KM (2004), Earnings Manipulation Risk , Corporate Governance Risk , and Auditors â€TM Planning ... The Accounting Review 79, 277–304.

      [13] American Institute of Certified Public Accountants (2006), AU 314-Understanding the Entity and Its Environment and Assessing the Risks. Retrieved from http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00314.pdf.

      [14] Burton FG, Wilks TJ & Zimbelman MF (2013), How Auditor Legal Liability Influences the Detection and Frequency of Fraudulent Financial Reporting. Current Issues in Auditing 7(2), 9–15. https://doi.org/10.2308/ciia-50566.

      [15] Coffee JC (2001), The Acquiescent Gatekeeper : Reputational Intermediaries , Auditor Independence the Governance of Accounting. The Center for Law and Economic Studies, (191).

      [16] Tsay B-Y (2010), Designing an internal control assessment program using COSO’s guidance on monitoring. CPA Journal, May, 52–57. Retrieved from https://login.proxy.lib.uni.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=crh&AN=54056292&site=eds-live.

      [17] Venter JMP & du Bruyn R (2002), Reviewing the internal auditing function: Processes and procedures. Meditari Accountancy Research 10(1), 227–241. https://doi.org/10.1108/10222529200200012.

      [18] American Institute of Certified Public Accountants (1983), AU 350-Audit Sampling. Retrieved from https://pcaobus.org/Standards/Auditing/pages/au350.aspx.

      [19] Yang C & Tan BL (2012), Corporate governance and income smoothing in China. Journal of Financial Reporting an Accounting 10(2), 120–139. https://doi.org/10.1108/19852511211273688.

      [20] Smith M, Fiedler B, Brown B & Kestel J (2001), Structure versus judgement in the audit process: a test of Kinney’s classification. Managerial Auditing Journal 16(1), 40–49. https://doi.org/10.1108/02686900110363645

      [21] American Institute of Certified Public Accountants (1989), AU 341-The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern.

      [22] Yaacob NM & Che-Ahmad A (2012), Adoption of FRS 138 and Audit Delay in Malaysia. International Journal of Economics and Finance 4(1), 167–176. https://doi.org/10.5539/ijef.v4n1p167.

      [23] Alabede JO (2012), The Role, Compromise and Problems of the External Auditor in Corporate Governance. Research Journal of Finance and Accounting 3(9), 114–126.

      [24] Simunic DA (1984), Auditing , Consulting , and Auditor Independence. Journal of Accounting Research 22(2), 679–702. https://doi.org/10.2307/2490671.

      [25] Ashton RH, Graul PR & Newton JD (1989), Audit delay and the timeliness of corporate reporting. Contemporary Accounting Research 5(2), 657–673. https://doi.org/10.1111/j.1911-3846.1989.tb00732.x.

      [26] American Institute of Certified Public Accountants (2002), AU 316-Consideration of Fraud in a Financial Statement Audit.

      [27] Louwers TJ, Henry E, Reed BJ & Gordon Ea (2008), Deficiencies in Auditing Related-Party Transactions: Insights from AAERs. Current Issues in Auditing 2(2), A10–A16. https://doi.org/10.2308/ciia.2008.2.2.A10.

      [28] Sharma A & Panigrahi KP (2012), A Review of Financial Accounting Fraud Detection based on Data Mining Techniques. International Journal of Computer Applications 39(1), 37–47. https://doi.org/10.5120/4787-7016.

      [29] Hahn W (2011), The Going-Concern Assumption: Its Journey into GAAP. The CPA Journal 81(2), 26–31. Retrieved from http://search.proquest.com/docview/859610513?accountid=26357

      [30] Hand DJ, Smyth P & Mannila H (2001), Principles of data mining. Principles of data mining. https://doi.org/10.1007/978-1-84628-766-4.

      [31] Nirkhi SM, Dharaskar RV & Thakre VM (2012), Data Mining: A Prospective Approach for Digital Forensics. International Journal of Data Mining & Knowledge Management Process 2(6), 41–48.

      [32] Dixon P (2005), An Overview of Computer Forensics Meddling with or Exploitation of Data. IEEE Potentials, (December) 7–10. https://doi.org/10.1109/MP.2005.1594001.

      [33] Wells JT (2011), Corporate Fraud Handbook (3rd Editio). Wiley International.

      [34] Widhoyok SA (2017), Fraud in Rights and Contracts A Review of Bankruptcy Case of Livent Inc..pdf. Binus Business Review 8(1), 31–39. https://doi.org/10.21512/bbr.v8i1.1827.

      [35] Arens A, Randal E & Beasley MS (2012), Auditing and Assurance Services : An integrated Approach. Fourteenth Edition. https://doi.org/10.1016/j.intacc.2011.04.006.

      [36] Mozes HA & Schiff AI (1995), A Critical Look at SFAS 34: Capitalization of Interest Cost. Abacus 31(1), 1–17. https://doi.org/10.1111/j.1467-6281.1995.tb00351.x.

      [37] Melorose J, Perroy R & Careas S (2015), Outlier Analysis. Statewide Agricultural Land Use Baseline 2015. https://doi.org/10.1017/CBO9781107415324.004.

      [38] Enquist B, Edvardsson B & Sebhatu SP (2007), Values-based service quality for sustainable business. Managing Service Quality 17(4), 385–403. https://doi.org/10.1108/09604520710760535.

      [39] Pande S & Ansari VA (2014), A Theoretical Framework for Corporate Governance. Indian Journal of Corporate Governance 7(1), 56–72. https://doi.org/10.2139/ssrn.1949615.

      [40] Davis JH, Schoorman FD & Donaldson L (1997), Toward a stewardship theory of management. Academy of Management Review 22(1), 20–47. https://doi.org/10.5465/AMR.1997.9707180258.

      [41] Hunjra AI, Ijaz MS, Chani MI, Hassan S, ul & Mustafa U (2014), Impact of Dividend Policy, Earning per Share, Return on Equity, Profit after Tax on Stock Price. Internation Journal of Economics and Empirical Research 2(3), 109–115. https://doi.org/10.5897/JAERD12.088.

      [42] Mousa F-T, J Ritchie W & Reed R (2014), Founder-CEO board involvement and optimal IPO valuation. Management Decision 52(3), 642–657. https://doi.org/10.1108/MD-02-2013-0088.

      [43] Pastoriza D & Arino Ma (2008), When Agents Become Stewards: Introducing Learning in the Stewardship Theory. 1st IESE Conference, “Humanizing the Firm and Management Profession”, Barcelona, IESE Business School, June 30-July 2, 2008, 1–16. https://doi.org/10.1163/156853238X00018.

      [44] Sanderson IaN, Policy D, Book M, Evans M, Azwan K, Kamal M, Hezri Aa (2014), What is the Policy Problem? Methodological Challenges in Policy Evaluation. International Federation of Accountants 30(4), 1–22. https://doi.org/10.1177/0095399713513140

      [45] Elouafa K (2012), Incremental Information Content of Cash Flows Versus Funds From Operations and Earnings : Applying New Methodologies in French Context. International Journal of Multidisciplinary Management Studies 2(5).

      [46] Nagar N & Raithatha M (2016), Does good corporate governance constrain cash flow manipulation? Evidence from India. Managerial Finance 42(11), 1034–1053. https://doi.org/10.1108/MF-01-2016-0028.

      [47] Buettner T, Overesch M, Schreiber U & Wamser G (2008), The impact of thin-capitalization rules on multinationals’ financing and investment decisions. Discussion Paper Series 1: Economic Studies No 03/2008.

      [48] Drucker S & Puri M (2009), On loan sales, loan contracting, and lending relationships. Review of Financial Studies 22(7), 2835–2872. https://doi.org/10.1093/rfs/hhn067.

      [49] Hansen MP & Trego G (2015), SEC “claws back” bonuses and stock sale profits from CFOs of public company charged with accounting fraud. Journal of Investment Compliance 16(2), 38–40. https://doi.org/10.1108/JOIC-04-2015-0020.

      [50] Kallberg J, Liu CH & Villupuram S (2013) Preferred stock: Some insights into capital structure. Journal of Corporate Finance 21(1), 77–86. https://doi.org/10.1016/j.jcorpfin.2013.01.005.

      [51] Swammy S (2017), Preferred Stock. In Capital Markets: Evolution of the Financial Ecosystem 286–295. https://doi.org/10.1002/9781119220589.ch15.

      [52] Pedneault S, Silverstone H, Rudewicz F & Sheetz M (2012), Forensic Accounting and Fraud Investigation for Non-Experts. Journal of Chemical Information and Modeling 53 https://doi.org/10.1017/CBO9781107415324.004.


 

View

Download

Article ID: 18266
 
DOI: 10.14419/ijet.v7i3.30.18266




Copyright © 2012-2015 Science Publishing Corporation Inc. All rights reserved.