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A taxonomy to guide research on the application of data mining to fraud detection in financial statement audits

Author

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  • Gray, Glen L.
  • Debreceny, Roger S.

Abstract

This paper explores the application of data mining techniques to fraud detection in the audit of financial statements and proposes a taxonomy to support and guide future research. Currently, the application of data mining to auditing is at an early stage of development and researchers take a scatter-shot approach, investigating patterns in financial statement disclosures, text in annual reports and MD&As, and the nature of journal entries without appropriate guidance being drawn from lessons in known fraud patterns. To develop structure to research in data mining, we create a taxonomy that combines research on patterns of observed fraud schemes with an appreciation of areas that benefit from productive application of data mining. We encapsulate traditional views of data mining that operates primarily on quantitative data, such as financial statement and journal entry data. In addition, we draw on other forms of data mining, notably text and email mining.

Suggested Citation

  • Gray, Glen L. & Debreceny, Roger S., 2014. "A taxonomy to guide research on the application of data mining to fraud detection in financial statement audits," International Journal of Accounting Information Systems, Elsevier, vol. 15(4), pages 357-380.
    • Handle: RePEc:eee:ijoais:v:15:y:2014:i:4:p:357-380
    DOI: 10.1016/j.accinf.2014.05.006
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    References listed on IDEAS

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    1. Jans, Mieke & Lybaert, Nadine & Vanhoof, Koen, 2010. "Internal fraud risk reduction: Results of a data mining case study," International Journal of Accounting Information Systems, Elsevier, vol. 11(1), pages 17-41.
    2. Elsas, Ph.I., 2008. "X-raying Segregation of Duties: Support to illuminate an enterprise's immunity to solo-fraud," International Journal of Accounting Information Systems, Elsevier, vol. 9(2), pages 82-93.
    3. Worrell, James & Wasko, Molly & Johnston, Allen, 2013. "Social network analysis in accounting information systems research," International Journal of Accounting Information Systems, Elsevier, vol. 14(2), pages 127-137.
    4. Jans, Mieke & Alles, Michael & Vasarhelyi, Miklos, 2013. "The case for process mining in auditing: Sources of value added and areas of application," International Journal of Accounting Information Systems, Elsevier, vol. 14(1), pages 1-20.
    5. Debreceny, Roger S. & Gray, Glen L., 2010. "Data mining journal entries for fraud detection: An exploratory study," International Journal of Accounting Information Systems, Elsevier, vol. 11(3), pages 157-181.
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