A knowledge-based approach for internal control evaluation

ABSTRACT

The evaluation of internal control is one component of the audit process. It establishes to what extent controls in a company's accounting system prevent, correct or detect system exposure to loss or misrepresentation. This information is used for determining what tests to subject accounting procedures to. Internal control evaluation is a complex process in terms of the judgments necessary and the lack of normative criteria for specifying these judgments. The main advantages to be gained from automating part of the evaluation process include reducing the variability in the quality of evaluation, and enabling the auditor to concentrate of more complex judgment areas. Our goal is to explore the feasibility of developing an intelligent audit assistant for internal control evaluation. This paper describes a computational model for internal control evaluation which uses a knowledge-based approach.

REFERENCES

• 1: Bailey, Andrew D., G. L. Duke, J. Gerlach, C. Ko, R. D. Meservy andA. B. Whinston, "TICOM and the Analysis of Internal Controls", TheAccounting Review, Vol. LX, No. 2, April 1985.
• 2: Andrew D. Bailey, Jr. , Rayman D. Meservy , Gordon L. Duke , Paul E. Johnson , William Thompson, Auditing, artificial intelligence and expert systems, Proc. of the NATO Advanced Study Institute on Decision support systems: theory and application, p.265-319, January 1987, Acquafredda di Maratea, Italy
• 3: J. U. Choi, ICE1: A constructive synthesis approach to a knowledge based internal control evaluation system design, Proceedings of the 1st international conference on Industrial and engineering applications of artificial intelligence and expert systems, p.1001-1015, June 1988, Tullahoma, Tennessee, United States [doi>10.1145/55674.55718]
• 4: Graham Francis Gal, Using auditor knowledge to formulate data model constraints: an expert system for internal control evaluation, 1985
• 5: Grundnitski, Gary, "A Prototype of an Internal Control Expert System for the Sales/Accounting Receivable Application", University ofTexas atAustin Worldng Paper, 1986.
• 6: Hansen, J.V. and Messier, W.F., "A Preliminary Investigation of EDP-XPERT", Auditing: A Journal of Practice and Theory, pp. 109-123, Fall 1986.
• 7: Rayman David Meservy, Auditing internal controls: a computational model of the review process (expert systems, cognitive, knowledge acquisition, validation, simulation), 1985
• 8: Meservy, R. David, A. D. Barley and P. E. Johnson, "Intemal Control Evaluation: A Computational Model of the Review Process", Auditing: A Journal of Practice and Theory, Vol 6 No 1, 1986.

INDEX TERMS

Primary Classification:
  J. Computer Applications
  J.1 ADMINISTRATIVE DATA PROCESSING
      Subjects: Business

Additional Classification:
  I. Computing Methodologies
  I.2 ARTIFICIAL INTELLIGENCE
      I.2.1 Applications and Expert Systems
          Subjects: Office automation

General Terms:
Design, Verification