Robots searching financial statements for fraud -- sounds like a Stanley Kubrick movie, doesn't it? But with audit fees rising, chief executive officers taking more responsibility for financial statements, and companies revealing billion-dollar revisions, the need for such "auditbots" is becoming essential.
Professor Robert Jensen, who teaches information systems at Trinity University in San Antonio says there are "more than enough incentives" for accounting firms and companies to create automated auditing aids using current technology.
"Software that permits database systems to talk to each other currently flows between companies, and auditbots can make it difficult if not impossible for companies to alter or eliminate key financial data," Jensen said.
He envisions cyber tags, like the ones that department stores remove from clothing after payment, being attached to individual transactions that cannot be removed and which automatically spot attempts to cook the books.
Auditbots would have spelled out the US$7.1 billion in accounting irregularities of WorldCom Inc long before they were revealed during the past two months, Jensen said.
The second-largest long-distance company admitted it improperly capitalized this huge amount, which it should have immediately deducted in its annual reports of 2000, last year and the first quarter of this year.
"The software would have attached a tag to each transaction involving costs that would have forced its reporting systems to spell them out in proper fashion rather than hide them," the professor said.
What would it take to create and enforce a system of auditbots? Jensen believes that in the next five to 10 years the business world and accounting firms will be forced to develop much better automated systems for auditing. "And these systems could be mandated by Congress and accounting regulators as they become aware of these systems," he said.
Miklos Vasarhelyi, professor of accounting information systems at Rutgers University in Newark, New Jersey, said auditbots are already being used with corporate foreign currency transfers, for on-line securities trading on Wall Street, and by AT&T Corp for fraud detection in its billing systems.
"Worldwide and industrywide use could be just around the corner," said Vasarhelyi, a leader in development of continuous auditing for business and the accounting profession.
Douglas Carmichael, an accounting professor at City University of New York's Baruch College and former head of auditing for the American Institute of CPAs, says that while such auditbots wouldn't be failsafe, they might reduce the huge expense for forensic accounting work, which can reach 10,000 hours, by as much as 25 percent.
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