The Audit Integrity Accounting and Governance Risk (AGR®) rating is a
forensic measure of the transparency and statistical reliability of a corporation's financial reporting and governance practices. The focus of AGR analysis is on identifying the measures most highly associated with fraud, and quantifying those risks for interested stakeholders in relation to company stock price, securities litigation and major restatement probabilities.
Audit Integrity conducts extensive accounting and governance tests to identify high-risk
companies:
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Accounting Risks – a forensic assessment of the
risk that financial results are misrepresented in public disclosures.
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Governance Risks – a forensic measurement a company's governance practices helps users identify statistically high-risk behavior.
Audit Integrity Methodology is comprised of four key processes:
Data Input Processing
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Over 25 unique data feeds are unified within a large-scale data center.
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Proprietary database includes over 1,000 SEC Enforcement Actions.
Fraud Metric Engine
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Generates the measures which form the building blocks in identifying fraudulent
behavior.
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Each metric is evaluated for unusual values ("outliers"), based on peer
comparisons.
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Metrics are organized within the Audit Integrity Taxonomy to make analysis and
presentation simple and intuitive. An example:
| High-level Risk |
Business Issue |
Forensic Metric (Ratio) |
| REVENUE RECOGNITION |
RECEIVABLES ACCOUNTING |
ACCOUNTS RECEIVABLE OVER SALES |
| EXPENSE RECOGNITION |
DEPRECIATION POLICIES |
ACCUMULATED DEPRECIATION OVER PLANT, PROPERTY & EQUIPMENT |
| ASSET-LIABILITY VALUATION |
PENSION ACCOUNTING |
UNDERFUNDED PENSION BENEFITS OVER LIABILITIES |
| HIGH RISK EVENTS |
ACCOUNTING CHANGES |
CUMULATIVE ACCOUNTING CHANGES OVER OPERATING EXPENSES |
| GOVERNANCE |
FINANCIAL DISCLOSURE |
NUMBER OF AMENDED FILINGS IN THE LAST YEAR |
Statistical Modeling
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Audit Integrity measures hundreds of metrics without preconceived bias as to what
defines fraud.
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Over 200 accounting and governance metrics are tested to determine which have the highest association with fraud.
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Forensic analysis identifies companies that exhibit extreme values in these metrics.
AGR® Calculation
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The AGR® score ranges from 0-100, with corresponding ratings from Very
Aggressive to Conservative.
Companies rated Very Aggressive or Aggressive have proven to be much more likely to face class action litigation and financial restatements, and to suffer severe equity loss.
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The AGR® model has been rigorously tested and validated using
accepted industry standards, and has proven to be accurate and independent of bias.
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