Neural network models: Foundations and applications to an audit decision problem

We investigate the possiblity of applying artificial intelligence to solve an audit decision problem faced by the public sector (namely, the tax auditor of the Internal Revenue Services) when targeting firms for further investigation. We propose that the neural network will overcome problems faced by a direct knowledge acquisition method in building an expert system to preserve the expertise of senior auditors of the IRS in Taiwan. An explanation of the neural network theory is provided with regard to multi- and single-layered neural networks. Statistics reveal that the neural network performs favourably, and that three-layer networks perform better than two-layer neural networks. The results strongly suggest that neural networks can be used to identify firms requiring further auditing investigation, and also suggest future implications for intelligent auditing machines.