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Explaining Financial Results

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  • Walter Hamscher

Abstract

CROSBY III automatically constructs explanations for financial results. The key elements of the program are (1) a body of raw financial data to be explained, (2) an extensible knowledge base of financial relations expressed as algebraic constraints, (3) a selection of possible explanatory variables and information about the relative likelihoods of individual hypotheses, (4) an algorithm for generating consistent, adequate, plausible and parsimonious interpretations of the data, (5) a facility for explaining how a particular interpretation supports the data and (6) a facility for explaining why one interpretation is preferred over another. This paper focuses on facilites (5) and (6). CROSBY III is an implemented but undeployed prototype that has been tested on historical data and financial models of a small high‐technology company along with its closest competitors, on more than ten divisions of a large company and on a collection of large banks.

Suggested Citation

  • Walter Hamscher, 1994. "Explaining Financial Results," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 3(1), pages 1-19, January.
    • Handle: RePEc:wly:isacfm:v:3:y:1994:i:1:p:1-19
    DOI: 10.1002/j.1099-1174.1994.tb00051.x
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    References listed on IDEAS

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    1. Feelders, A J, 1992. "A Model of Explanation for Financial Knowledge-Based Systems," Computer Science in Economics & Management, Kluwer;Society for Computational Economics, vol. 5(2), pages 119-132, May.
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    3. Marinus J. Bouwman, 1983. "Human Diagnostic Reasoning by Computer: An Illustration from Financial Analysis," Management Science, INFORMS, vol. 29(6), pages 653-672, June.
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