Glen L. Gray

The determinants of Internet financial reporting

Abstract Responding to the widespread adoption of the Internet and the rapidly growing demands for information from stakeholders, corporations around the world are using the Internet for business and financial disclosures. Internet reporting has the benefits of low cost, wider reach, frequency and speed. Despite these benefits Internet reporting varies across companies and across countries. We study Internet financial reporting (IFR), in particular the presentation and content of IFR, of 660 large companies in 22 countries to identify the firm, and environmental determinants of IFR. The study revealed that firm size, listing on US stock exchanges and technology were firm specific determinants of IFR. Given that IFR is not just about the content of disclosure, but also about employing new presentation methods, the environment of disclosure was included in the research. The overarching disclosure environment of a country was found to be an important environmental driver for IFR presentation and less strongly for IFR content. The presentation aspect of IFR was more associated with the identified determinants than the content of IFR, which suggests that Internet presentation technologies were more related to the determinants than the content of the reports on the company Web sites.

Embedded audit modules in enterprise resource planning systems : implementation and functionality.

Embedded Audit Modules (EAMs) are a potentially efficient and effective compliance and substantive audit‐testing tool. Early examples of EAMs were implemented in proprietary accounting information systems and production systems. Over the last decade, there has been widespread deployment of Enterprise Resource Planning (ERP) systems that provide common business process functionality across the enterprise. These application systems are based upon a common foundation provided by large‐scale relational database‐management systems. No published research addresses the potential for exploiting the perceived benefits of EAMs in an ERP environment. This exploratory paper seeks to partially close this gap in the research literature by assessing the level and nature of support for EAMs by ERP providers. We present five model EAM‐use scenarios within a fraud‐prevention and detection environment. We provided the scenarios to six representative ERP solution providers, whose products support “small,” “medium,” and “larg...

Data mining journal entries for fraud detection: An exploratory study

Fraud detection has become a critical component of financial audits and audit standards have heightened emphasis on journal entries as part of fraud detection. This paper canvasses perspectives on applying data mining techniques to journal entries. In the past, the impediment to researching journal entry data mining is getting access to journal entry data sets, which may explain why the published research in this area is a null set. For this project, we had access to journal entry data sets for 29 different organizations. Our initial exploratory test of the data sets had interesting preliminary findings. (1) For all 29 entities, the distribution of first digits of journal dollar amounts differed from that expected by Benfords Law. (2) Regarding last digits, unlike first digits, which are expected to have a logarithmic distribution, the last digits would be expected to have a uniform distribution. Our test found that the distribution was not uniform for many of the entities. In fact, eight entities had one number whose frequency was three times more than expected. (3) We compared the number of accounts related to the top five most frequently occurring three last digit combinations. Four entities had a very high occurrences of the most frequent three digit combinations that involved only a small set of accounts, one entity had a low occurrences of the most frequent three digit combination that involved a large set of accounts and 24 had a low occurrences of the most frequent three digit combinations that involved a small set of accounts. In general, the first four entities would probably pose the highest risk of fraud because it could indicate that the fraudster is covering up or falsifying a particular class of transactions. In the future, we will apply more data mining techniques to discover other patterns and relationships in the data sets. We also want to seed the dataset with fraud indicators (e.g., pairs of accounts that would not be expected in a journal entry) and compare the sensitivity of the different data mining techniques to find these seeded indicators.

The Development of Embedded Audit Modules to Support Continuous Monitoring in the Electronic Commerce Environment

An important developing area of assurance is continuous audit. Because of the real-time, computer-to-computer characteristics of electronic commerce, the development of continuous audit techniques is even more critical. Proponents of continuous audit point to a future where auditors monitor entitys accounting information systems in real-time or in quasi real-time. A predecessor technology to continuous audit is the Embedded Audit Module (EAM). This study investigates the challenges in developing EAMs. These challenges are analyzed by the development of ten examples of EAM alerts in a fraud environment. The alerts employ stored database procedures and triggers to monitor the internal control environment. The alerts are complementary to the strengthening of a firms internal control system by monitoring and reporting the irregularities in the control environment. The study provides guidance on the construction of EAMs and points to a number of limitations in their development. These limitations raise a number of issues that must be considered before continuous audit can be widely adopted. The study sets out a number of issues for future research.

IT Governance and Process Maturity: A Multinational Field Study

ABSTRACT: This study investigates the relationship between key information technology (IT) governance characteristics and IT process maturity, as a measure of IT capability, in a multinational field study of 51 organizations. The study employs the IT processes defined within the COBIT framework as a model of the major processes that comprise IT capability. COBIT framework includes a of set maturity models based on the Capability Maturity Model (CMM) from the Software Engineering Institute (SEI). Data are collected on all aspects of IT governance at each organization as well as the level of process maturity for each process in COBIT. Maturity modeling in COBIT includes six attributes of process maturity. The state of alignment between the IT and non-IT functions at each organization and the level of national development are strongly associated with process maturity. These findings apply whether considering the overall level of process maturity or the level by domain or attribute.

A taxonomy to guide research on the application of data mining to fraud detection in financial statement audits

This paper explores the application of data mining techniques to fraud detection in the audit of financial statements and proposes a taxonomy to support and guide future research. Currently, the application of data mining to auditing is at an early stage of development and researchers take a scatter-shot approach, investigating patterns in financial statement disclosures, text in annual reports and MD&As, and the nature of journal entries without appropriate guidance being drawn from lessons in known fraud patterns. To develop structure to research in data mining, we create a taxonomy that combines research on patterns of observed fraud schemes with an appreciation of areas that benefit from productive application of data mining. We encapsulate traditional views of data mining that operates primarily on quantitative data, such as financial statement and journal entry data. In addition, we draw on other forms of data mining, notably text and email mining.

A Relative Cost Framework of Demand for External Assurance of XBRL Filings

ABSTRACT: There has been much discussion in the academic literature and in the XBRL community on the role of audit firms in providing assurance services for XBRL filings, especially now that the use of XBRL has been mandated in the United States. This paper presents the development of a framework of the demand for external assurance of XBRL filings predicated on two relative cost arguments. First, that in the absence of a mandate for XBRL filings to be assured by an external auditor, a manager will compare the cost of obtaining external assurance against the cost of obtaining confidence on the filings internally. Second, managers will be reluctant to pay more for external assurance on an XBRL filing than they paid to prepare it. The former is called the external cost relative to internal cost comparison, and the latter the external cost relative to preparation cost comparison. Based on our relative cost framework, it is predicted that there will only be a role for externally provided assurance of XBRL fil...

Data Mining of Electronic Mail and Auditing: A Research Agenda

ABSTRACT:  A potentially important form of audit evidence is corporate email, which includes the background, intent, and outcome of managerial actions. Emails are semi-structured data, with known fields for sender, recipient, subject, and date, as well as the email body and attachments. Data mining of emails (DME) combines understanding of social networks, textual analysis using natural language processing and other techniques, and domain knowledge. Email data mining research received a considerable boost by the availability of a large archive of emails from the now-defunct Enron Corporation. The paper provides an overview of DME techniques, and the potential expanded applications of DME by auditors. The paper also discusses a set of research areas and research opportunities.

IT Governance and Process Maturity: A Field Study

An important element of IT governance is the provision of robust IT capability. The concept of process capability maturity provides a useful methodology for the measurement and analysis of the state of IT capability. The COBIT IT Governance framework provides both a measurement methodology and IT process structure that provides a foundation for the measurement of process capability maturity across the lifecycle of IT investment. This study reports the results of a large-scale field study of process maturity in 51 organizations in eight developed and developing countries.

The expert systems life cycle in AIS research: What does it mean for future AIS research?

Accounting information system (AIS) is the intersection of the accounting domains and the computer science and information systems domains. Periodically, new technology emerges that generates a new AIS research to explore the application of that technology to the accounting domains. AIS researchers compete with researchers in information systems, computer science, electrical engineering, plus other technology-related disciplines. AIS researchers are also frequently competing with the organizations (e.g., accounting firms) that have resources that far exceed academic resources. This paper explores the life cycle of expert systems research by accounting researchers to provide general insights into the roles of accounting researchers in technology domains. From 1980 through 2011, 315 accounting-related expert systems papers were published. Those publications generally transitioned through the industry life cycle stages. The peak years were the early 1990s. Although most of the expert system publications appeared in AIS-oriented publications, by the 2005–2011 timeframe, a little more than 50% appeared in non-system journals. There were 387 unique authors involved in writing the 315 articles. Interestingly, 20 (5.2%) authors wrote 58% of the papers and 311 (80.4%) authors wrote just one paper. In the practice community, Brown (1991) listed 43 expert systems in use or under development at the Big 6. Any use of expert systems in the firms ended in the late 1990s.