Explaining Qualifications in Audit Reports Using a Support Vector Machine Methodology

Intelligent Systems in Accounting, Finance & Management, Vol. 13, pp. 197-215, 2005

Posted: 27 Jul 2006

See all articles by Michael Doumpos

Michael Doumpos

Technical University of Crete (TUC) - Department of Production Engineering and Management

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics

Fotios Pasiouras

GSCM-Montpellier Business School

Abstract

The verification of whether the financial statements of a firm represent its actual position is of major importance for auditors, which should provide a qualified report if they conclude that the financial statements fail to meet this requirement. This paper implements support vector machines (SVM) to develop models that may support auditors in this task. Linear and non-linear models are developed and their performance is analyzed using training samples of different size and out-of-sample/out-of-time data. The results show that all SVM models are capable of distinguishing between qualified and unqualified financial statements with satisfactory accuracy. The performance of the models over time is also explored.

Keywords: Auditing, Qualified reports, Support vector machines, Bootstrap

JEL Classification: M41, M49, C63

Suggested Citation

Doumpos, Michael and Gaganis, Chrysovalantis and Pasiouras, Fotios, Explaining Qualifications in Audit Reports Using a Support Vector Machine Methodology. Intelligent Systems in Accounting, Finance & Management, Vol. 13, pp. 197-215, 2005, Available at SSRN: https://ssrn.com/abstract=919363

Michael Doumpos (Contact Author)

Technical University of Crete (TUC) - Department of Production Engineering and Management ( email )

University Campus
Chania
Crete, 73100
Greece
+30 28210 37318 (Phone)
+30 28210 69410 (Fax)

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics ( email )

University Campus
Rethymno, Crete, 74100
Greece

HOME PAGE: http://economics.soc.uoc.gr/en/staff/4551/17

Fotios Pasiouras

GSCM-Montpellier Business School ( email )

2300, Avenue des Moulins
Montpellier, 34185
France

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