Ernst & Young Center for Auditing Research and Advanced Technology (E&Y CARAT)
Division of Accounting and Information Systems, School of Business
The University of Kansas, Lawrence, KS 66045
Summer 1996
Ernst & Young Center for Auditing Research
and Advanced Technology (E&Y CARAT)
Division of Accounting and Information Systems, School of Business
The University of Kansas, Lawrence, KS 66045
Summer 1996
We have just completed the first year of the Ernst & Young Center for
Auditing Research and
Advanced Technology. I am pleased to report the progress we have made towards our
mission during this period. Under the E&Y Distinguished Visiting Scholars program,
Professor
Theodore J. Mock, Arthur Andersen Alumni Distinguished Professor at the University of
Southern California visited the Center for a week in October 1995 and a week in May 1996.
Professor Arnold Wright, Ar-thur Andersen Distinguished Professor at Boston College
visited
the Center for a week in May 1996. We have already started working on several exciting
research projects and have scheduled a meeting in Chicago during the 1996 American
Accounting Association Annual Meeting to discuss our progress. These projects deal with
fundamental issues related to auditing process, audit risk model, and audit judgments.
In addition to E&Y Visiting Schol-ars, the following visiting speakers participated in
the
Accounting and Finance Workshop and AI Seminar series cosponsored by E&Y CARAT
and the Ron Harper Arti-ficial Intelligence Lab: Carlis Y. Baldwin, Harvard University; B.
Banerjee, Calcutta University; Christine A. Botosan, Washington University; Kurt Fanning,
North Eastern Missouri State University; Jere Francis, Arthur Andersen/ Joeseph Silvoso
Professor, Univer-sity of Missouri-Columbia; Ganesh Krishnamoorthy, Boston College,
Linda McDaniel, University of North Carolina; Robert Neal, Fed-eral Reserve Bank of
Kansas City; Jeff L. Payne, Pittsburg State Uni-versity; Michael Rothschild, Presi-dent of
The
Bionomics Institute; Vernon Smith, Regents Professor of Economics at University of
Ari-zona; Timothy D. West, Iowa State University.
Under the E&Y Student Fellowship and Faculty Mentor program, the Center awarded three
fellowships: Peter Gillett, E&Y Doctoral Fellow, worked with me, Will Lewis, jr., a
graduate
student, worked with Professor Kay Nelson, and Ashok Fichadia, also a graduate student,
worked with Professor Ken Cogger. Later in this newsletter, you will find more details on
the
individual projects on which these students worked. This program has proven to be very
successful. Both, students and faculty, have benefited. Students get first hand experience
with
research and teaching issues by working closely with the faculty mentors. The E&Y
faculty
mentors benefit from having students help them on the projects. I would like to
acknowledge
the increased support from the Ernst & Young Founda-tion and the individual donors for
this
project. This additional support will allow me to allocate funds to create two additional
fellow-ships for the coming academic year. I would like to thank everyone who has
contributed to the program. I owe special thanks to the following individuals for their
encouragement and personal support: Ellen Glazerman, Executive Director, Ernst & Young
Founda-tion; Jim Searing, Director of Research, Ernst & Young LLP; Bill Taylor and
John
Wilgers, Partners at the Kansas City Office; Bob Crawford, Chet Vanatta, and Bob Mueller,
Retired Partners. The rest of the newsletter provides you the details of the activities of
the
Center.
• Inauguration by E&Y CARAT Director: Rajendra
P. Srivastava, Ernst & Young
Professor and Director of E&Y CARAT inaugu-rated the 19th All India Accounting
Conference held at the Vikram University in Ujjain, India, on December 26-27, 1995.
• Visit by Director to Ernst & Young LLP World Headquarter:
Rajendra Srivastava
visited Ernst & Young LLP in Cleveland on January 18, 1996, to discuss applications of
auditing research to audit practice with the E&Y Audit Innovation Team. According to
Raj
Srivastava, the meeting was very fruitful. He discovered many opportunities for future
collaboration.
• E&Y Distinguished Visiting Scholars Visit the Center: Theodore
J. Mock, Arthur
Andersen Alumni Distinguished Professor, Uni-versity of Southern California, visited the
Center during October 11-15, 1995, and May 10-16, 1996. Arnold Wright, Arthur
Andersen Professor, Boston College, visited the Center during May 10-16, 1996. Professor
Ted Mock has been an active researcher and has served the profession in several capacities
including Chairman of the Auditing Section of the American Accounting Association and
Editor of Auditing: A Journal of Practice and Theory. Professor Arnie Wright has also been
an active researcher and has served the profession in several capacities including
Chairman of
Auditing Section of the American Accounting Association. The projects on which the E&Y
CARAT is working in collaboration with the E&Y Distinguished Visiting Scholars deal
with
fundamental issues related to auditing process, audit risk model, and audit judgments.
• Status Report Presentation: A meeting was held on April 18, 1996,
to report on the
status of the Center's activities. In addition to the student and faculty associates of
the Center,
Molly Cook, Ellen Glazerman, Bill Taylor, and John Wilgers from Ernst & Young LLP
attended the presentation. E&Y Student Fellows and E&Y Faculty Mentors presented a
progress report on their projects that were supported by the E&Y CARAT.
• Ernst & Young Breakfast: Ernst & Young Foundation in
cooperation with the Kansas
City Office sponsored a breakfast meeting on April 19, 1996, in conjunction with the 1996
Midwest Meeting of the American Accounting Association. The purpose of the meeting was
to celebrate the formation of the E&Y CARAT at KU and inform the participants about
challenges and opportunities of the Center. The breakfast meeting was a great success.
About
thirty people attended the breakfast. Most of the participants were professors attending
the
conference. Thanks to Bill Taylor, John Wilgers, and Kate Renfrow of Kansas City Office
for
their support.
• E&Y Student Fellows and Faculty Mentors: Peter Gillett,
E&Y Ph. D. Fellow, and Raj
Srivastava, E&Y Faculty Mentor: Professor Raj Srivastava and Ph.D student Peter
Gillett
have worked on developing a computer system, PURSUIVANT, that will help auditors plan
and evaluate audit decisions un-der uncertainty. The program, when completed, will work on
IBM compatible systems. Peter has significant experience in practice in various capacities
including as a partner at Grant Thornton. This preferred experience, combined with his
research at the University of Kansas, has helped him obtain an associate professorship at
Rutgers University-Newark. Congratulations Peter!
Will Lewis, jr., E&Y Student Fellow, and Kay Nelson, E&Y Faculty Mentor:
Professor Kay Nelson and MBA student Will Lewis worked on a number of projects during
the 1995/96 school year as part of the Ernst and Young Center Fellowship program. These
projects included developing Internet teaching materials and tutorials. Will was given the
opportunity to teach a class using these materials. As a result, all KU first year
Lawrence
MBAs have home pages on the World Wide Web. Will also assisted Kay in research on
Information Systems Departments chargeback of costs to users and on a software flexibility
project. Will also performed an EDP audit on the Wagnon computer lab as part of his E
& Y
fellowship. Due in part to the experience he gained during this fellowship, Will has
obtained an
I/S position with LDDS Worldcom, one of the fastest growing telecommunications companies
in the country. Well done Will!
Ashok Fichadia, E&Y Student Fellow, and Ken Cogger, E&Y Faculty Mentor:
Professor Ken Cogger and MBA student Ashok Fichadia worked on developing interactive
programming using Internet. This system allows users to analyze data from remote locations
using Internet. Such a program has potential applications in the use of analytical
procedures in
conducting audits in remote locations. Ashok has accepted a position with Union Pacific as
an
EDP auditor. Congratulations Ashok!
• E&Y CARAT’s Research Workshop Activities: The Ernst &
Young Center for
Auditing Research and Advanced Technology has sponsored two research workshops during
Spring semester for sharing and exchanging research ideas among faculty and Ph. D.
students.
The details of the seminars are given below.
Feb 02: J. Charnes: A Forward Monte Carlo Method for Solving Influence
Diagrams Using
Local Computation.
Feb 13: K. Harrison: An Introduction to the Semantics of Belief Functions.
Feb 20: P. Gillet: Integrating Statistical and Non-statistical Audit Evidence Using Belief
Functions.
Mar 01: J. Coate & K. Nelson: IS Department Chargeback and the Implications of Cost
Pool Allocations.
Mar 08: K. Fanning & K. Cogger: Neural Network Detection of Management Fraud Using
Published Financial Data.
Apr 12: K. Cogger: A Statistical Interpretation of Adaptive-Logic Networks
May 03: R. P. Srivastava: Belief Combination and Propaga-tion in a Lattice-Structured
Inference Network.
Jan 26: Prof. Vernon Smith, Univ. of Arizona, Experimental Economics and
Applications to
the Arizona Stock Exchange.
Feb 2: Peter Gillett, KU, Integrating Statistical and Non-Statistical Audit Evidence Using
Belief Functions: The Case of Monetary Unit Sampling.
Feb 9: Prof. T. West, Iowa State University, The Product Cost Accuracy/Computational
Complexity Trade-Off: External Auditors’ Perceptions of Activity-Based Costing.
Feb 16: Prof. D. Plumlee, KU, The Effect of Documentation Mode on Understanding and
Recall of Audit Evidence.
Feb 23: Prof. Ken Mackenzie and D. Shaffer, KU, A Process Theory for Managing Risk.
Mar 1: M. Rothchild, Pres. of the Bionomics Institute, Bottle-neck Costing: An Application
of
Bionomics on the Factory Floor.
Mar 8: Prof. J. Coate, KU, Regulation and Legal Costs in the Audit Market: Impacts on
Pricing, Quality, and Turnover.
Mar 15: Prof. B. Banerjee, Calcutta University, Corporate Financial Reporting in the Third
World Countries : A Case Study of India, Pakistan, and Bangladesh.
Apr 5: Prof. G. Krishnamoorthy, Boston College, A Multistage Approach to External
Auditor's Evaluation of The Internal Audit Function.
Apr 12: Prof. J. Payne, Pittsburg State University, Empirical Investigation of the
Relationship
Between Selected Attributes of Accounting Systems and the Incidence of Audit Differences.
Apr 26: Professors W. Beedles, M. Hirschey, and M. Joy, KU, Easy Money, Efficient
Market, and Growin Old.
May 3: Prof. C.Y. Baldwin, Harvard University, Modularity: How Real Options Affect
Industry Structure. 