Paper: arXiv 2507.06266

Authors: Tingyu Yuan, Xi Zhang, Xuanjing Chen

Abstract

In the face of global economic uncertainty, financial auditing has become essential for regulatory compliance and risk mitigation. Traditional manual auditing methods are increasingly limited by large data volumes, complex business structures, and evolving fraud tactics. This study proposes an AI-driven framework for enterprise financial audits and high-risk identification, leveraging machine learning to improve efficiency and accuracy. Using a dataset from the Big Four accounting firms (EY, PwC, Deloitte, KPMG) from 2020 to 2025, the research examines trends in risk assessment, compliance violations, and fraud detection. The dataset includes key indicators such as audit project counts, high-risk cases, fraud instances, compliance breaches, employee workload, and client satisfaction, capturing both audit behaviors and AI’s impact on operations. To build a robust risk prediction model, three algorithms - Support Vector Machine (SVM), Random Forest (RF), and K-Nearest Neighbors (KNN) - are evaluated. SVM uses hyperplane optimization for complex classification, RF combines decision trees to manage high-dimensional, nonlinear data with resistance to overfitting, and KNN applies distance-based learning for flexible performance. Through hierarchical K-fold cross-validation and evaluation using F1-score, accuracy, and recall, Random Forest achieves the best performance, with an F1-score of 0.9012, excelling in identifying fraud and compliance anomalies. Feature importance analysis reveals audit frequency, past violations, employee workload, and client ratings as key predictors. The study recommends adopting Random Forest as a core model, enhancing features via engineering, and implementing real-time risk monitoring. This research contributes valuable insights into using machine learning for intelligent auditing and risk management in modern enterprises.

Complexity vs Empirical Score

  • Math Complexity: 2.0/10
  • Empirical Rigor: 4.5/10
  • Quadrant: Philosophers — conceptual discussion, limited math and data

Why this score: The paper applies off-the-shelf machine learning classifiers (SVM, Random Forest, KNN) to high-level corporate audit data without introducing advanced mathematical models or significant technical novelty. The dataset appears aggregate and somewhat artificial (covering macroeconomic firm-level metrics from 2020 to 2025), limiting the empirical validity and practical applicability for real-world auditing.

Research Flowchart

  flowchart TD
    A[Goal: Enhance Enterprise Audit Efficiency & High-Risk/Fraud Detection] --> B[(Data Collection: Big Four Audit Dataset 2020-2025)]
    B --> C[Feature Selection: Audit Frequency, Workload, Past Violations, Client Ratings]
    C --> D[Model Training & Evaluation: SVM, Random Forest, KNN with Hierarchical K-Fold CV]
    D --> E[Model Selection: Random Forest Achieves Top Performance<br>F1-Score: 0.9012]
    E --> F[Outcome: Deploy RF Model for Real-Time Risk Monitoring & Intelligent Auditing]