Thomas G. Calderon

A roadmap for future neural networks research in auditing and risk assessment

Abstract This paper focuses on the use of neural networks (NNs) as an enabler of the new business risk auditing framework and provides insight into future research opportunities. In general, NNs, which are classifiers by nature, offer the capacity to simultaneously consider multiple types of evidence and can assist auditors in assessing risks and making judgments [Int. J. Intell. Syst. Account. Finance Manag. 2 (1993) 19; Decis. Sci. 26 (1995) 209; Eur. J. Oper. Res. 103 (1997) 350; Audit. J. Pract. Theory (1997) 14; Int. J. Intell. Syst. Account. Finance Manag. 7 (1998) 21; The use of neural networks as an audit tool in fraud risk assessment. Proceedings of American Accounting Association Northeast Regional Meeting, Rochester (NY), 1999; Int. J. Intell. Syst. Account. Finance Manag. 8 (1999) 159]. Furthermore, NNs may be superior to other approaches in circumstances where data are available in relatively large samples, the range of values to be analyzed for each case is large, and the underlying associations among the data are fuzzy and ill-defined [Decis. Support Syst. 11 (1994) 497.]. The paper reviews several published studies, which are grouped into six categories—preliminary information risk assessment (1 study), control risk assessment (2 studies), errors and fraud (6 studies), going-concern audit opinion (3 studies), financial distress (3 studies), and bankruptcy (12 studies). The paper includes a brief introduction to NNs, followed by a description and analysis of the methods employed by and findings of researchers who used NNs as a tool for research in the auditing and risk assessment domain. The literature review leads to discussion of several broad foci areas that need further exploration in order to gain a better understanding of the efficacy of NNs as an enabler of business risk-based auditing. A discussion of the general limitations of NNs as an auditing and risk assessment tool and an outline of implications for future research opportunities conclude the paper.

Use of multiple information types in assessing accounting faculty teaching performance

Abstract This paper examines whether multiple types of information are used in assessing faculty teaching performance and provides insight into the characteristics of departments where administrators use this assessment approach. The results show that student ratings are used by 95% of accounting departments administrators. Although 82% of administrators use multiple types of information to assess teaching performance, they employ, on average, less than three types of information and show a preference for non-systematic, subjective types of information. While the AACSB, the AECC and others have encouraged the use of multiple types of information in assessing teaching performance, the overall number of information types used by accounting administrators is significantly less than the broad set of items suggested for inclusion in a teaching portfolio. Administrators from accounting departments with Ph.D. programs and from departments accredited at both the college and department levels are most likely to use multiple types of information in assessing faculty teaching performance.

Determinants of client‐initiated and auditor‐initiated auditor changes

Purpose - Prior studies include auditor-initiated (AI) and client-initiated (CI) auditor changes together and conduct research as though they were the same. This paper aims to hypothesize that AI and CI changes are driven by different interests and to examine factors that could explain and predict them. Design/methodology/approach - Based on the prior literature, the authors classified factors into AI and CI categories a priori, and then developed hypotheses that aligned with the classification. The data source is AuditAnalytics. Findings - The univariate and multivariate analyses support the hypothesis that CI and AI separations are driven by different interests. The empirically determined prediction model (a classification and regression trees (CART)-generated six-step process), which performed better than other multivariate models, classifies AI and CI auditor separations with an accuracy rate of 68 percent. Research limitations/implications - The findings suggest that future research should incorporate the differences between AI and CI separations into their studies. One intriguing issue is the lack of importance of the variable audit fees to total fees in the CART model. Though statistically significant in some of the multivariate analyses, the variable is not important in the CART model. This issue merits further investigation as it could provide important insight into dependency issues that are presumed by current audit regulation. Practical implications - The paper has important implications for practice. It offers insight into factors that drive CI and AI auditor separations. The CART model may serve as a decision aid for both auditors and regulators as they contemplate and evaluate auditor change decisions. Originality/value - The paper provides original insight into AI and CI auditor changes when considered as distinct issues that are driven by different interests.

Modeling an intelligent continuous authentication system to protect financial information resources

Abstract This paper examines fundamental principles of continuous authentication (CA) and proposes a four-tier CA architecture to secure financial information systems. We define CA as a process that verifies the identity of an information systems user continuously for the entire duration of an authorized session. While organizations can, in theory, strengthen the security of their financial information systems through CA, several challenges need to be addressed in designing a CA architecture. A primary challenge involves the constantly changing user profiles in globally networked business environments. Profile content may include user knowledge and characteristics, access location, job characteristics, and transaction attributes. We propose swarm intelligence, which has the capacity to handle complex profile changes, as a technology for implementing CA in a dynamic, distributed network environment where user profiles are constantly changing. The paper explores model implementation challenges and discusses opportunities for future research.

Summary of promoting and evaluating effective teaching

Abstract Teaching, research and service have traditionally been viewed as the primary roles of institutions of higher learning. Recently colleges and universities have been reevaluating their commitment to teaching in response to new accreditation guidelines and pressure from state legislatures and other stakeholders who contribute to the budgets of higher education. Many professors and college administrators have also called for a renewed emphasis on teaching. In keeping with this renaissance of interest in teaching, the Teaching and Curriculum Section of the AAA initiated a project in the summer of 1994 to examine methods for promoting and evaluating effective teaching. This report presents an overview of the Committees work. In addition to identifying five accounting programs with “best practice” systems for promoting and evaluating teaching effectiveness, the Committees report stresses the importance of a comprehensive administrative system and the AECCs dimensions of effective teaching.

Toward a Biometric Security Layer in Accounting Systems

This paper discusses theoretical and practical issues related to the use of a biometric‐enabled security layer in accounting systems aimed at enhancing user authentication and reducing control risk. Originating in criminology, biometric technology has matured over the years with applications in diverse disciplines. However, its use in business and accounting is still in its infancy, and many issues about its role in information systems security are unresolved. The paper proposes an access decision framework that draws from the strategy and risk assessment literature to model processes where biometrics might be used to reduce control risk. Despite its potential strengths, biometric technology is not a panacea and represents one element in a portfolio of security mechanisms needed to protect information resources. The paper discusses challenges in implementing biometric technology and identifies avenues for future research.

Using real-world cases to illustrate the power of analytical procedures

Abstract Accounting instructors often introduce analytical procedures (APs) to students as a series of techniques that help to reduce audit time and cost. However, they do not generally provide students with sufficient real-world cases that encourage students to use data from multiple sources, exercise judgment, and evaluate risks. This paper uses MiniScribe Corporation to illustrate how a real-world case might be incorporated into an auditing class to achieve some of the recommendations of the Accounting Education Change Commission and, at the same time, highlight the efficiency and effectiveness of APs. The case also reinforces the joint importance of qualitative and quantitative factors in detecting management fraud

Analyzing late SEC filings for differential impacts of IS and accounting issues

This paper investigates differential market response to the reasons that companies provide for late SEC filings of 10-K and 10-Q reports. Specifically, we examine the market reaction to late filings when the stated reasons are related to information systems (IS) issues versus accounting and other issues. We find that the reasons stated for delayed filings on Form 12b-25 explain differences in market response. More negative market returns are associated with filing delays caused by IS issues, SOX implementations, and SEC investigations. Accounting and administrative reasons are less significant. These results suggest that late filers bear different costs of noncompliance with SEC filing requirements depending on whether the underlying reasons are systems-related or accounting-related.

Perspectives on implementing a framework for evaluating effective teaching

Abstract The recently published report of the Committee on Promoting and Evaluating Teaching Effectiveness (AAA, Teaching & Curriculum Section) recommends a comprehensive framework for evaluating effective teaching (Calderon, T., Gabbin, A., & Green, B. (1997). Framework for encouraging effective teaching. Harrisonburg, VA: Center for Research in Accounting Education, James Madison University). As part of the framework, the Committee advocates a portfolio approach to fully assess the various dimensions of effective teaching. This paper describes the experience of three accounting departments in their initial application of selected PETE Committee recommendations. Each case describes the departments motivation, how chosen recommendations are applied, information resources required, and the problems and concerns encountered. An evaluation of the lessons learned during the first year in each of these cases is also provided. The material presented in this paper should be of interest to accounting programs that wish to focus attention on the dimensions of effective teaching in assessing faculty teaching performance.

Information intensity, control deficiency risk, and materiality

Purpose - This paper leverages the concept of business information intensity (BII) with the aim of developing a model to assess control deficiency risk (CDR) in organizations. BII measures the extent of use of IT by an organization in its products and value chain. Design/methodology/approach - The paper develops a conceptual model that uses BII and CDR to examine alternative approaches to risk management. This model contains four quadrants that provide insight into varying risk management strategies for business processes. CFOs and internal auditors from Findings - The model suggests that spending on IT and information security is higher for companies with high BII-CDR than those with low BII-CDR. Research limitations/implications - Analysis focused on only two quadrants in a four-quadrant model. Future research may seek to refine the measurement of BII and CDR, and offer greater insight into the types of business processes that fall into each of the four quadrants as well as those that do not fit neatly into those quadrants. Practical implications - Organizations may use the BII-CDR model to assess risk and to evaluate investments in IT security and other control activities. The model also highlights the need to redefine the concept of materiality and to consider its link to BII and CDR. Auditors should consider the interaction of BII and CDR in planning the audit, conducting field work, and managing overall audit risk. Originality/value - The paper provides original insights into the relationship between BII and CDR and its implications for treatment of materiality. It was observed that activities which support critical business processes are themselves critical. This is an important departure from traditional approaches to evaluating materiality.