The effectiveness of expectation models in recognizing error patterns and generating and eliminating hypotheses while conducting analytical procedures
RA Leitch, Y Chen - Auditing: A journal of practice & theory, 2003 - publications.aaahq.org
This study analyzes the hypothesis generation and elimination capability of analytical
procedures using Structural, Stepwise, Martingale, and ARIMA (Auto Regressive Integrated
Moving Average) expectation models. We seed 14 errors into 36 complete sets of actual
monthly financial statements from three companies. The bivariate pattern of differences,
along with the structure of the accounting, business process, and economic system, are
used to analytically determine (hypothesize) the most likely cause of the error. We then test …
procedures using Structural, Stepwise, Martingale, and ARIMA (Auto Regressive Integrated
Moving Average) expectation models. We seed 14 errors into 36 complete sets of actual
monthly financial statements from three companies. The bivariate pattern of differences,
along with the structure of the accounting, business process, and economic system, are
used to analytically determine (hypothesize) the most likely cause of the error. We then test …