Authors: Hung-Lin Lai and Ting-Yu Chen
Since investors often rely on audited financial statements to make decisions in investing securities of companies, an external audit is mandated for publicly traded companies. Investors believe that auditors will provide independent assurance for the companies’ financial statements conforming to Generally Accepted Accounting Principles. Therefore, auditors often carried the audit risk and the possibility of submitting wrong opinions which will lead to litigation risk. However, related information provided by companies for auditing usually has significant economic and social consequences on various parties. It is always an uncertain and complex situation for an audit firm to evaluate acceptance of potential new clients. In particular, in an uncertain and complex situation, making a choice becomes more difficult for decision makers. Audit firm’s decision makers need a useful method to help them controlling risks in client acceptance. Here we proposed a client evaluation method which is using a TOPSIS (technique for order preference by similarity to ideal solution) approach to evaluate potential new clients in linguistic terms in the environment of interval-valued fuzzy numbers (IVFNs). Through an illustration example, it indicated that the proposed method could help decision makers to evaluate potential clients before acceptance, especially in the situation that there are several potential clients but limited resource to provide service. It also could help audit firms more easily ensure that firm policy in client evaluation are complied with by different decision makers through setting fixed weights of uncertainty factors.
Keywords: decision making, audit risk, client evaluation, interval-valued fuzzy numbers, TOPSIS, similarity measure