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3. HISTORICAL ACCOUNT

Although development of accounting expert systems started in the early 1970s, published research on the topic only started to appear in 1977: TAXMAN in the tax domain and TICOM in the financial reporting/audit domain. The few papers that appeared before 1982 were mostly related to those two early development efforts. From 1982, the number of published papers approximately doubled each year until beginning to level off around 1987-1988 (Brown 1989).

3.1. THE ERA OF THE RESEARCH PROTOTYPES

Publications during the first decade included a few survey papers that were mostly tutorials, because there was such a small base of work to survey, and a few papers that outlined accounting areas appropriate for expert system development. By far the greatest number of publications during this early period described research prototypes developed in the financial reporting/auditing, tax, and managerial accounting domains, many being funded by the large accounting firms and forming the foundation upon which some of the later deployed applications were built. Prototype development is often an attempt to understand how decisions are made, in this domain, by expert accountants; and research prototypes continue to be developed in an on-going effort to achieve a better understanding of how judgment-based accounting decisions are made.

3.1.1. Financial Reporting/Auditing

The early development efforts in the financial reporting/auditing domain address basic financial reporting issues from an auditing perspective. These systems focused on the areas of accounting that were clearly judgment based, including evaluating internal controls, assessing inherent risk, going-concern judgments, and materiality judgments. Later systems included all these areas in comprehensive audit planning systems. The discovery nature of expert system development is clearly demonstrated in these early systems, as they achieved a deeper understanding of how decisions traditionally based on judgment were actually being made. In some cases, what was learned has led to better, more-consistent decision processes.

Internal control related systems include: TICOM (The Internal Control Model), developed by Bailey, Duke, Gerlach, Ko, Meservy, and Whinston, for modeling internal controls and querying the model to evaluate their adequacy; ARISC (Auditor Response to Identified Systems Controls) developed by Meservy, Bailey, and Johnson, which models internal control evaluation in the purchasing cycle; EDP-Expert, developed by Hansen and Messier, to assist computer audit specialists make judgments on the reliability of controls in advanced computer environments; ICE (Internal Control Evaluation), developed by Kelly, to model auditor judgment in internal control evaluation; ICES (Internal Control Expert System) developed by Grudnitski, focusing on sales and accounts receivable transactions; Internal-Control-Analyzer, developed by Gal, examines the evaluation of revenue cycle controls using data in the firm's physical database and determines the adequacy of the allowance for bad debts; AUDITOR, developed by Chandler, Dungan, and Braun, assists in assessing the appropriateness of the allowance for doubtful accounts provision; and Auditing Internal Controls makes qualitative judgments similar to the ways in which an expert auditor performs the judgment.

Systems focusing on the going-concern judgment include: GC-X (Going Concern Expert), developed by Biggs and Selfridge, to investigate the diagnostic reasoning processes used by auditors to make a prediction and take action regarding a firm's ability to continue to operate as a going concern; AOD (Audit Opinion Decision), developed by Dillard and Muchler, to assess solvency in the context of the going concern judgment of auditors; and FCEX, developed by Boritz to support the auditor's evaluation of financial condition, risk of business failure, and the validity of the going-concern assumption for an audit client.

Audit planning systems were developed for all stages of the audit planning process. Three systems, IRE (Inherent Risk Expert) by Dhar and Peters; APE (Audit Planning Expert), by Denna; and Inherent Risk Assessment, by Boritz, Kielstra, and Albuquerque, were developed to explore inherent audit risk assessment as part of audit planning; AuditPlanner, developed by Steinbart, related to the materiality judgment made by auditors; CAPEX (Canadian Audit Planning Expert), was developed by Boritz and Wensley for creating comprehensive audit program plans for banking, retailing and manufacturing firms; APX (Audit Planning Expert), outlined and partially implemented by Bharadwai, Mahapatra, Karan, and Murthy, was also concerned with comprehensive audit planning; and AUDPLAN, developed by Killingsworth, was designed to plan the compliance audit of a firm's sales transaction cycle.

Expert system development for accounting is not limited to English-speaking countries. A number of German researchers have developed expert systems for financial statement analysis (Back, 1991).

The major accounting firms were working on their own prototypes during this same period. CFILE was developed by the Audit Research Group of Peat Marwick for bank audits; and CHECKGAAP was developed by Deloitte, Haskins, and Sells as an automated checklist to assist auditors in determining that the company complied with the U.K. Companies Act.

Many of the auditing expert systems are discussed by O'Leary and Watkins (1989), Edwards and Connell (1989), and by Boritz and Wensley (1996). These research prototype systems were used as models for commercial systems developed later. For example, Inherent Risk Assessment was used as the basis for the Price Waterhouse PLANET system, and CAPEX was used as the basis for Grant Thornton's ADAPT system (Boritz and Wensley, 1996).


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