Model-based Auditing with Inequalities

Auditors must rely on evidence of the party being audited, who may have a legitimate or illegitimate interest to overstate an account or understate it or leave it out all together. In this paper, we apply an approach called model-based auditing to use a mathematically precise model of the expected relationships between the flow of money and the flow of goods or services, to analyze potential deficiencies financial reporting. We look in particular at inequalities, derived from the interests of actors involved and from assumptions about the domain, the information system and the control measures. The usefulness of the approach in practice is shown by a case study of a customs warehouse.