Decision-making capabilities of a hybrid system applied to the auditor's going-concern assessment

Abstract

The purpose of this study is to evaluate a hybrid system as a decision support model to assist with the auditor's going-concern assessment. The going-concern assessment is often an unstructured decision that involves the use of both qualitative and quantitative information. An expert system that predicts the going-concern decision has been developed in consultation with partners at three of the Big Five accounting firms. This system is combined with a statistical model that predicts bankruptcy, as a component of the auditor's decision, to form a hybrid system. The hybrid system, because it combines the use of quantitative and qualitative information, has the potential for better prediction accuracy than either the expert system or statistical model predicting separately. In addition, testing of the system provides some insight into the characteristics of firms that experience problems, but do not necessarily receive a going-concern modification. Further investigation into those firms that have problems could reveal factors that may be incorporated into decision support systems for auditors, in order to improve accuracy and reliability of these decision tools. © 2001 John Wiley & Sons, Ltd.