Using Artificial intelligence through machine learning to predict financial audit risks
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Using Artificial Intelligence through Machine Learning to Predict Financial Audit Risks
Introduction to AI and Machine Learning in Financial Auditing
Artificial intelligence (AI) and machine learning (ML) have revolutionized various industries, including financial auditing. These technologies enable the prediction and management of financial audit risks by analyzing large datasets and identifying patterns that may indicate potential issues. This article synthesizes recent research on the application of AI and ML in predicting financial audit risks.
Machine Learning Algorithms for Financial Risk Prediction
Artificial Neural Networks (ANN) for Audit Risk Evaluation
One significant approach involves using artificial neural networks (ANN) to evaluate audit risks in financial statements. Researchers have developed models that quantify fraud factors and predict audit risks by analyzing aspects such as audit violation penalties, announcements, and financial statement restatements. These models have demonstrated effectiveness in accurately predicting audit risks, thereby enhancing the reliability of financial audits1.
Deep Learning and Big Data in Financial Risk Management
Deep learning networks and big data technologies have also been employed to control financial risks. By preprocessing financial data and using various ML algorithms, researchers have achieved high accuracy in predicting risk events. For instance, models integrating AI and big data have shown a 90% accuracy rate in risk event prediction, outperforming traditional methods2.
Dynamic Auditing with Machine Learning
In the context of internet finance, machine learning algorithms such as the Apriori algorithm, data mining, and Bayesian networks have been used to dynamically audit financial risks. These methods enable the intelligent identification of capital circulation issues, providing timely feedback on abnormal financial activities and aiding auditors in managing financial risks more effectively4.
Applications in Supply Chain and Corporate Risk Management
Supply Chain Financial Risk Prevention
Machine learning algorithms play a crucial role in supply chain financial risk prevention. By using data mining and optimization algorithms, researchers have developed models that predict business failures and financial crises. These models help supply chain enterprises identify potential risks and take proactive measures to mitigate them, thereby enhancing overall operational efficiency5.
Corporate Risk Prediction in Nonfinancial Firms
In nonfinancial firms, supervised machine learning techniques such as random forests, decision trees, and naïve Bayes have been used to predict corporate risks. These techniques analyze financial ratios to assess risks accurately, leading to the automation of corporate risk management processes. Among these methods, the random forest technique has shown superior performance in risk prediction7.
Challenges and Future Directions
Addressing Model Bias and Ethical Concerns
While machine learning offers significant advantages in financial auditing, it also raises concerns about potential biases and ethical implications. Researchers emphasize the need for transparency and fairness in ML models to ensure unbiased and ethical decision-making in financial audits3.
Enhancing Model Accuracy and Reliability
Ongoing research aims to improve the accuracy and reliability of ML models in financial risk prediction. Techniques such as deep belief neural networks (DBN) and long-short term memory (LSTM) networks have been proposed to enhance the predictive capabilities of audit models. These advanced models have shown promising results in predicting audit opinions and financial risks9.
Conclusion
The integration of artificial intelligence and machine learning in financial auditing has significantly improved the prediction and management of audit risks. By leveraging advanced algorithms and big data technologies, researchers have developed models that enhance the accuracy and reliability of financial audits. However, addressing ethical concerns and improving model transparency remain critical for the widespread adoption of these technologies in financial auditing.
Sources and full results
Most relevant research papers on this topic
Audit Risk Evaluation Model for Financial Statement Based on Artificial Intelligence
This paper proposes an artificial neural networks-based audit risk evaluation model for financial statements, effectively identifying and evaluating audit risks, reducing financial statement frauds.
Machine learning and financial big data control using IoT
The model based on artificial intelligence and big data technology achieves 90% accuracy in risk event prediction, with higher ability in controlling financial data risk compared to other methods.
Learning from Machine Learning in Accounting and Assurance
Machine learning in accounting and assurance can predict fraud, bankruptcy, and material misstatements, but raises concerns about bias and ethical implications.
Dynamic Audit of Internet Finance Based on Machine Learning Algorithm
Machine learning algorithms can effectively identify abnormal capital problems in Internet finance enterprises, helping auditors better manage their capital circulation.
Research on Supply Chain Financial Risk Prevention Based on Machine Learning
The CGOA-SVM-SMA algorithm effectively helps supply chain enterprises prevent financial risks by identifying potential risks and adopting scientific measures to deal with crises.
Artificial Intelligence and Machine Learning based Financial Risk Network Assessment Model
AI and machine learning-based financial risk network assessment models effectively assess supply chain finance risks, as demonstrated by their effectiveness in assessing Bank M's financial risk.
Predicting Risk through Artificial Intelligence Based on Machine Learning Algorithms: A Case of Pakistani Nonfinancial Firms
AI techniques, particularly random forest, can accurately predict corporate risks in Pakistani nonfinancial firms, leading to improved risk management automation.
Machine Learning for Financial Risk Management: A Survey
Machine learning methods have significantly improved financial risk management, but face challenges and emerging trends.
Systematic ReviewIntelligent Financial Auditing Model Based on Deep Learning
The deep belief neural network (DBN) and long-short term memory (LSTM) fusion model effectively predicts audit opinions for consolidated financial statements, improving audit quality and reducing human resources.
Machine Learning for Credit Risk Prediction: A Systematic Literature Review
Machine Learning models, particularly the Boosted Category, can effectively predict credit risk in the microfinance industry, but face limitations in representativeness and data imbalances.
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