Assessing inherent risk during audit planning: The development of a knowledge based model

Peters, James M.; Lewis, Barry L.; Dhar, Vasant

doi:10.1016/0361-3682(89)90006-8

Cited by 26 publications

(17 citation statements)

References 5 publications

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“…It would seem that variables pertaining to (a) the characteristics of the management of the company, and (b) whether this is the first year that the audit has been undertaken by the same firm, were perceived as important at the financial statement level. These findings are consistent with the evidence from Monroe et al (1993), Johnson (1987), Colbert (1988) and Peters et al (1989). At the account balance and class of transactions level, statements associated with a history of errors were perceived by the respondents to be important determinants of inherent risk.…”

Section: Auditor's Responses On the Importance Of Variablessupporting

confidence: 92%

“…They documented evidence that liquidity problems, a history of errors and fraud, inventory levels, the strength of internal controls and whether the audit was associated with an initial public offering were factors influencing the assessment of inherent risk. Peters, Lewis & Dhar (1989) proposed a more disaggregated approach. They concluded that inherent risk assessments were usually generated on an account-byaccount basis; auditors hold expectations about account balances and investigate balances that differ from these expectations; auditors' expectations tend to be based on changes in events or circumstances relative to prior years; management's incentives and abilities to manipulate account balances are of special importance in assessing inherent risk; and to be useful, inherent risk assessment should provide an analysis of why a given account is risky rather than give a quantitative estimate of risk.…”

Section: Inherent Risk Factorsmentioning

confidence: 99%

See 1 more Smart Citation

Uk Auditors' Perceptions of Inherent Risk

Helliar

Lyon

Monroe

et al. 1996

The British Accounting Review

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Section: Auditor's Responses On the Importance Of Variablessupporting

confidence: 92%

Section: Inherent Risk Factorsmentioning

confidence: 99%

Uk Auditors' Perceptions of Inherent Risk

Helliar

Lyon

Monroe

et al. 1996

The British Accounting Review

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“…Auditing standards recognize the subjective nature of accounting estimates and that there is greater potential for uncertainty and bias in subjective estimates than in objective amounts involved in the accounting process (AICPA 1988). For instance, the likelihood that management could misstate an account balance increases as the degree of judgement (subjectivity) in determining the account balance increases (e.g., see Peters, Lewis, and Dhar 1989).…”

Section: Task Subjectivitymentioning

confidence: 99%

Internal Audit Sourcing Arrangement and the External Auditor's Reliance Decision*

Glover

Prawitt

Wood

2008

Contemporary Accting Res

144

111

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“…Two approaches, knowledge-based (or expert systems) and procedural decision models, are applied to the problem and the results they generate are compared. Peters (1989), Bharadwaj et al (1994) and Delisio et al (1994) have selected a knowledge-based approach as the appropriate tool to model audit risk assessments of this type. An overview of these papers follows.…”

Section: Introductionmentioning

confidence: 99%

“…An overview of these papers follows. • Peters (1989) constructed an expert system to model the assessment of inherent risk during audit planning. He developed an initial model derived from several knowledge sources.…”

Section: Introductionmentioning

confidence: 99%

Modelling Audit Risk Assessments: Exploration of an Alternative to the Use of Knowledge‐based Systems

Lloyd

Goldschmidt

2003

Int J Auditing

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Artificial intelligence-based decision models are employed on an extensive and growing basis in audit practice and research. They facilitate the training of new practitioners, enable the more efficient use of skilled practitioners' time and provide documented consistency in decisionmaking. For these reasons the use of knowledgebased models to support decisions such as audit risk assessment has grown. This paper investigates one risk assessment decision, audit risk assessment in the purchases, inventory and accounts payable transaction cycle, which has previously been the subject of This paper compares decision-modelling approaches. The decision modelled is the assessment of inherent and control risk in the purchases, accounts payable and inventory cycle. It is modelled using two different approaches. Firstly, knowledge-based models are constructed using established development shells. Secondly, a model is constructed using a conventional procedural programming language. Both modelling approaches are tested against the output of human practitioners and compared to each other to determine if the more restrictive, assumption-laden approach offered by the procedural model is adequate to deal with the decision problem under examination, or if the greater flexibility offered by the knowledge-based approach is required. This comparison yields positive results. The procedural model is able to reproduce satisfactorily the output of the human decision makers and the knowledge-based models for the chosen decision problem. This result emphasises the importance of devoting time to the selection of the most appropriate modelling approach for a given decision problem.knowledge-based modelling, to see if it can be adequately addressed by a more restricted decision model, embodied in a purpose written procedural application. This study is a comparison of decision output of decision models constructed using these two approaches. Such a comparison can act as a trigger, signalling the need to further evaluate decision-modelling techniques before a final choice is made.The knowledge base required to construct these decision models is obtained from a case study based instrument. Two knowledge-based models were constructed to provide a comparator for the output of the procedural model. These use a rulebased knowledge representation technique, and embody the appropriate meta-knowledge to apply those rules. The procedural model incorporates the contents of these rules as a set of data items that are applied on the basis of a generalised approximation of that meta-knowledge. This approximation is inherently less flexible and, if it produces an adequate model, must thus result in a more parsimonious model of the risk assessment process.The success of the procedural model is judged by comparison of its decision output with that of the two knowledge-based models. To ensure that this comparison is meaningful, the output of all three models is also compared to that of human decision makers. Decision output for these comparisons is generated fr...

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Assessing inherent risk during audit planning: The development of a knowledge based model

Cited by 26 publications

References 5 publications

Uk Auditors' Perceptions of Inherent Risk

Uk Auditors' Perceptions of Inherent Risk

Internal Audit Sourcing Arrangement and the External Auditor's Reliance Decision*

Modelling Audit Risk Assessments: Exploration of an Alternative to the Use of Knowledge‐based Systems

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