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An application of data envelopment analysis to the evaluation of audit risk: a reinterpretation

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  • Nurhan Davutyan
  • Lerzan Kavut

Abstract

This paper, which reinterprets previous work by Bradbury and Rouse (2002), addresses the risk quantification issue at an intuitive level. The insights provided by such quantification are discussed. Risk factors are associated with the risk‐return concept. This allows measuring whether risks taken on are appropriately rewarded. The paper gives a non‐technical exposition of DEA and outlines possible applications to accounting and finance. Using data for a large multinational, it shows how DEA analysis can be combined with internal audit procedures. It explains how the results obtained can be used to improve risk management.

Suggested Citation

  • Nurhan Davutyan & Lerzan Kavut, 2005. "An application of data envelopment analysis to the evaluation of audit risk: a reinterpretation," Abacus, Accounting Foundation, University of Sydney, vol. 41(3), pages 290-306, October.
    • Handle: RePEc:bla:abacus:v:41:y:2005:i:3:p:290-306
    DOI: 10.1111/j.1467-6281.2005.00183.x
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    File URL: https://doi.org/10.1111/j.1467-6281.2005.00183.x
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    References listed on IDEAS

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    1. Ray,Subhash C., 2012. "Data Envelopment Analysis," Cambridge Books, Cambridge University Press, number 9781107405264, September.
    2. Andrew C. Worthington†, 1998. "Technical Efficiency and Technological Change in Australian Building Societies, 1993/94-1996/97‡," Banking & Finance Conference Papers 9906, Centre for Australian Financial Institutions.
    3. Michael E. Bradbury & Paul Rouse, 2002. "An Application of Data Envelopment Analysis to the Evaluation of Audit Risk," Abacus, Accounting Foundation, University of Sydney, vol. 38(2), pages 263-279, June.
    4. Jeffrey Kantor & Shlomo Maital, 1999. "Measuring Efficiency by Product Group: Integrating DEA with Activity-Based Accounting in a Large Mideast Bank," Interfaces, INFORMS, vol. 29(3), pages 27-36, June.
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    Cited by:

    1. Gholam R. Amin & Osama El‐Temtamy & Samy Garas, 2022. "Audit Risk Evaluation Using Data Envelopment Analysis with Ordinal Data," Abacus, Accounting Foundation, University of Sydney, vol. 58(3), pages 589-602, September.
    2. Sahoo, Biresh K. & Acharya, Debashis, 2010. "An alternative approach to monetary aggregation in DEA," European Journal of Operational Research, Elsevier, vol. 204(3), pages 672-682, August.

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