Exception Prioritization in Continuous Auditing: A Framework and Experimental Evaluation

Posted: 6 Oct 2013 Last revised: 16 Oct 2016

See all articles by Pei Li

Pei Li

Southwestern University of Finance and Economics (SWUFE)

David Y. Chan

St. John's University - Department of Accounting & Taxation

Alexander Kogan

Rutgers, The State University of New Jersey

Date Written: October 1, 2013

Abstract

Researchers have found that the volume of exceptions generated by a continuous auditing system can be overwhelming for an internal audit department to investigate. In this paper, we propose a framework that systematically prioritizes exceptions based on the likelihood of an exception being erroneous or fraudulent. The framework consists of six stages: 1) generation of exceptions using defined rules, 2) assignment of suspicious scores to exceptions using belief functions, 3) exception prioritization, 4) exception investigation by auditors, 5) rule confidence refinement by back propagation, and 6) rule additions by a rule learner algorithm. We also simulated the proposed framework using an experiment. The results from the experiment show that the framework has the potential to effectively prioritize exceptions in practice.

Keywords: Continuous Auditing, Exception Prioritization, Belief Functions, Belief Revision, Back Propagation, Rule Learner

JEL Classification: M41

Suggested Citation

Li, Pei and Chan, David Y. and Kogan, Alexander, Exception Prioritization in Continuous Auditing: A Framework and Experimental Evaluation (October 1, 2013). Journal of Information Systems, Vol. 30, No. 2, 2016, Available at SSRN: https://ssrn.com/abstract=2334378 or http://dx.doi.org/10.2139/ssrn.2334378

Pei Li (Contact Author)

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

David Y. Chan

St. John's University - Department of Accounting & Taxation ( email )

New York, NY
United States

Alexander Kogan

Rutgers, The State University of New Jersey ( email )

311 North 5th Street
New Brunswick, NJ 08854
United States

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