Detecting Earnings Management Using Neural Networks

Detecting Earnings Management Using Neural Networks. Trying to balance between relevant and reliable accounting data, generally accepted accounting principles (GAAP) allow, to some extent, the company management to use their judgment and to make subjective assessments when preparing financial statements. The opportunistic use of the discretion in financial reporting is called earnings management. There have been a considerable number of suggestions of methods for detecting accrual based earnings management. A majority of these methods are based on linear regression. The problem with using linear regression is that a linear relationship between the dependent variable and the independent variables must be assumed. However, previous research has shown that the relationship between accruals and some of the explanatory variables, such as company performance, is non-linear. An alternative to linear regression, which can handle non-linear relationships, is neural networks. The type of neural network used in this study is the feed-forward back-propagation neural network. Three neural network-based models are compared with four commonly used linear regression-based earnings management detection models. All seven models are based on the earnings management detection model presented by Jones (1991). The performance of the models is assessed in three steps. First, a random data set of companies is used. Second, the discretionary accruals from the random data set are ranked according to six different variables. The discretionary accruals in the highest and lowest quartiles for these six variables are then compared. Third, a data set containing simulated earnings management is used. Both expense and revenue manipulation ranging between -5% and 5% of lagged total assets is simulated. Furthermore, two neural network-based models and two linear regression-based models are used with a data set containing financial statement data from 110 failed companies. Overall, the results show that the linear regression-based models, except for the model using a piecewise linear approach, produce biased estimates of discretionary accruals. The neural network-based model with the original Jones model variables and the neural network-based model augmented with ROA as an independent variable, however, perform well in all three steps. Especially in the second step, where the highest and lowest quartiles of ranked discretionary accruals are examined, the neural network-based model augmented with ROA as an independent variable outperforms the other models.

Design of a FIR filter for image restoration using principal component neural networks

The neural network finds its application in many image denoising applications because of its inherent characteristics such as nonlinear mapping and self-adaptiveness. The design of filters largely depends on the a-priori knowledge about the type of noise. Due to this, standard filters are application and image specific. Widely used filtering algorithms reduce noisy artifacts by smoothing. However, this operation normally results in smoothing of the edges as well. On the other hand, sharpening filters enhance the high frequency details making the image non-smooth. An integrated general approach to design a finite impulse response filter based on principal component neural network (PCNN) is proposed in this study for image filtering, optimized in the sense of visual inspection and error metric. This algorithm exploits the inter-pixel correlation by iteratively updating the filter coefficients using PCNN. This algorithm performs optimal smoothing of the noisy image by preserving high and low frequency features. Evaluation results show that the proposed filter is robust under various noise distributions. Further, the number of unknown parameters is very few and most of these parameters are adaptively obtained from the processed image.

Optimal Blood Glucose Regulation using Single Network Adaptive Critics

Diabetes is a serious disease during which the body's production and use of insulin is impaired, causing glucose concentration level toincrease in the bloodstream. Regulating blood glucose levels as close to normal as possible, leads to a substantial decrease in long term complications of diabetes. In this paper, an intelligent neural network on-line optimal feedback treatment strategy based on nonlinear optimal control theory is presented for the disease using subcutaneous treatment strategy. A simple mathematical model of the nonlinear dynamics of glucose and insulin interaction in the blood system is considered based on the Bergman's minimal model. A glucose infusion term representing the effect of glucose intake resulting from a meal is introduced into the model equations. The efficiency of the proposed controllers is shown taking random parameters and random initial conditions in presence of physical disturbances like food intake. A comparison study with linear quadratic regulator theory brings Out the advantages of the nonlinear control synthesis approach. Simulation results show that unlike linear optimal control, the proposed on-line continuous infusion strategy never leads to severe hypoglycemia problems.

Composite MR image reconstruction and unaliasing for general trajectories using neural networks

In rapid parallel magnetic resonance imaging, the problem of image reconstruction is challenging. Here, a novel image reconstruction technique for data acquired along any general trajectory in neural network framework, called ``Composite Reconstruction And Unaliasing using Neural Networks'' (CRAUNN), is proposed. CRAUNN is based on the observation that the nature of aliasing remains unchanged whether the undersampled acquisition contains only low frequencies or includes high frequencies too. Here, the transformation needed to reconstruct the alias-free image from the aliased coil images is learnt, using acquisitions consisting of densely sampled low frequencies. Neural networks are made use of as machine learning tools to learn the transformation, in order to obtain the desired alias-free image for actual acquisitions containing sparsely sampled low as well as high frequencies. CRAUNN operates in the image domain and does not require explicit coil sensitivity estimation. It is also independent of the sampling trajectory used, and could be applied to arbitrary trajectories as well. As a pilot trial, the technique is first applied to Cartesian trajectory-sampled data. Experiments performed using radial and spiral trajectories on real and synthetic data, illustrate the performance of the method. The reconstruction errors depend on the acceleration factor as well as the sampling trajectory. It is found that higher acceleration factors can be obtained when radial trajectories are used. Comparisons against existing techniques are presented. CRAUNN has been found to perform on par with the state-of-the-art techniques. Acceleration factors of up to 4, 6 and 4 are achieved in Cartesian, radial and spiral cases, respectively. (C) 2010 Elsevier Inc. All rights reserved.

Optimal blood glucose regulation of diabetic patients using single network adaptive critics

Diabetes is a long-term disease during which the body's production and use of insulin are impaired, causing glucose concentration level to increase in the bloodstream. Regulating blood glucose levels as close to normal as possible leads to a substantial decrease in long-term complications of diabetes. In this paper, an intelligent online feedback-treatment strategy is presented for the control of blood glucose levels in diabetic patients using single network adaptive critic (SNAC) neural networks (which is based on nonlinear optimal control theory). A recently developed mathematical model of the nonlinear dynamics of glucose and insulin interaction in the blood system has been revised and considered for synthesizing the neural network for feedback control. The idea is to replicate the function of pancreatic insulin, i.e. to have a fairly continuous measurement of blood glucose and a situation-dependent insulin injection to the body using an external device. Detailed studies are carried out to analyze the effectiveness of this adaptive critic-based feedback medication strategy. A comparison study with linear quadratic regulator (LQR) theory shows that the proposed nonlinear approach offers some important advantages such as quicker response, avoidance of hypoglycemia problems, etc. Robustness of the proposed approach is also demonstrated from a large number of simulations considering random initial conditions and parametric uncertainties. Copyright (C) 2009 John Wiley & Sons, Ltd.

Predictive uncertainty of chaotic daily streamflow using ensemble wavelet networks approach

Perfect or even mediocre weather predictions over a long period are almost impossible because of the ultimate growth of a small initial error into a significant one. Even though the sensitivity of initial conditions limits the predictability in chaotic systems, an ensemble of prediction from different possible initial conditions and also a prediction algorithm capable of resolving the fine structure of the chaotic attractor can reduce the prediction uncertainty to some extent. All of the traditional chaotic prediction methods in hydrology are based on single optimum initial condition local models which can model the sudden divergence of the trajectories with different local functions. Conceptually, global models are ineffective in modeling the highly unstable structure of the chaotic attractor. This paper focuses on an ensemble prediction approach by reconstructing the phase space using different combinations of chaotic parameters, i.e., embedding dimension and delay time to quantify the uncertainty in initial conditions. The ensemble approach is implemented through a local learning wavelet network model with a global feed-forward neural network structure for the phase space prediction of chaotic streamflow series. Quantification of uncertainties in future predictions are done by creating an ensemble of predictions with wavelet network using a range of plausible embedding dimensions and delay times. The ensemble approach is proved to be 50% more efficient than the single prediction for both local approximation and wavelet network approaches. The wavelet network approach has proved to be 30%-50% more superior to the local approximation approach. Compared to the traditional local approximation approach with single initial condition, the total predictive uncertainty in the streamflow is reduced when modeled with ensemble wavelet networks for different lead times. Localization property of wavelets, utilizing different dilation and translation parameters, helps in capturing most of the statistical properties of the observed data. The need for taking into account all plausible initial conditions and also bringing together the characteristics of both local and global approaches to model the unstable yet ordered chaotic attractor of a hydrologic series is clearly demonstrated.

Volume Change behaviour in Calcitic Soil influenced with Sulphuric Acid using Artificial Neural Networks

This paper elucidates the methodology of applying artificial neural network model (ANNM) to predict the percent swell of calcitic soil in sulphuric acid solutions, a complex phenomenon involving many parameters. Swell data required for modelling is experimentally obtained using conventional oedometer tests under nominal surcharge. The phases in ANN include optimal design of architecture, operation and training of architecture. The designed optimal neural model (3-5-1) is a fully connected three layer feed forward network with symmetric sigmoid activation function and trained by the back propagation algorithm to minimize a quadratic error criterion.The used model requires parameters such as duration of interaction, calcite mineral content and acid concentration for prediction of swell. The observed strong correlation coefficient (R2 = 0.9979) between the values determined by the experiment and predicted using the developed model demonstrates that the network can provide answers to complex problems in geotechnical engineering.

Stress-Strain Prediction of Jointed Rocks using Artificial Neural Networks

The applicability of Artificial Neural Networks for predicting the stress-strain response of jointed rocks at varied confining pressures, strength properties and joint properties (frequency, orientation and strength of joints) has been studied in the present paper. The database is formed from the triaxial compression tests on different jointed rocks with different confining pressures and different joint properties reported by various researchers. This input data covers a wide range of rock strengths, varying from very soft to very hard. The network was trained using a 3 layered network with feed forward back propagation algorithm. About 85% of the data was used for training and remaining15% for testing the predicting capabilities of the network. Results from the analyses were very encouraging and demonstrated that the neural network approach is efficient in capturing the complex stress-strain behaviour of jointed rocks. A single neural network is demonstrated to be capable of predicting the stress-strain response of different rocks, whose intact strength vary from 11.32 MPa to 123 MPa and spacing of joints vary from 10 cm to 100 cm for confining pressures ranging from 0 to 13.8 MPa.

An Area-Efficient Noise-Adaptive Neural Amplifier in 130 nm CMOS Technology

Chronic recording of neural signals is indispensable in designing efficient brain–machine interfaces and to elucidate human neurophysiology. The advent of multichannel micro-electrode arrays has driven the need for electronics to record neural signals from many neurons. The dynamic range of the system can vary over time due to change in electrode–neuron distance and background noise. We propose a neural amplifier in UMC 130 nm, 1P8M complementary metal–oxide–semiconductor (CMOS) technology. It can be biased adaptively from 200 nA to 2 $mu{rm A}$, modulating input referred noise from 9.92 $mu{rm V}$ to 3.9 $mu{rm V}$. We also describe a low noise design technique which minimizes the noise contribution of the load circuitry. Optimum sizing of the input transistors minimizes the accentuation of the input referred noise of the amplifier and obviates the need of large input capacitance. The amplifier achieves a noise efficiency factor of 2.58. The amplifier can pass signal from 5 Hz to 7 kHz and the bandwidth of the amplifier can be tuned for rejecting low field potentials (LFP) and power line interference. The amplifier achieves a mid-band voltage gain of 37 dB. In vitro experiments are performed to validate the applicability of the neural low noise amplifier in neural recording systems.

Tractable theories for the synthesis of neural networks

The Radius of Direct attraction of a discrete neural network is a measure of stability of the network. it is known that Hopfield networks designed using Hebb's Rule have a radius of direct attraction of Omega(n/p) where n is the size of the input patterns and p is the number of them. This lower bound is tight if p is no larger than 4. We construct a family of such networks with radius of direct attraction Omega(n/root plog p), for any p greater than or equal to 5. The techniques used to prove the result led us to the first polynomial-time algorithm for designing a neural network with maximum radius of direct attraction around arbitrary input patterns. The optimal synaptic matrix is computed using the ellipsoid method of linear programming in conjunction with an efficient separation oracle. Restrictions of symmetry and non-negative diagonal entries in the synaptic matrix can be accommodated within this scheme.

Prediction of Ground Water Levels in the Uplands of a Tropical Coastal Riparian Wetland using Artificial Neural Networks

Artificial Neural Networks (ANNs) have been found to be a robust tool to model many non-linear hydrological processes. The present study aims at evaluating the performance of ANN in simulating and predicting ground water levels in the uplands of a tropical coastal riparian wetland. The study involves comparison of two network architectures, Feed Forward Neural Network (FFNN) and Recurrent Neural Network (RNN) trained under five algorithms namely Levenberg Marquardt algorithm, Resilient Back propagation algorithm, BFGS Quasi Newton algorithm, Scaled Conjugate Gradient algorithm, and Fletcher Reeves Conjugate Gradient algorithm by simulating the water levels in a well in the study area. The study is analyzed in two cases-one with four inputs to the networks and two with eight inputs to the networks. The two networks-five algorithms in both the cases are compared to determine the best performing combination that could simulate and predict the process satisfactorily. Ad Hoc (Trial and Error) method is followed in optimizing network structure in all cases. On the whole, it is noticed from the results that the Artificial Neural Networks have simulated and predicted the water levels in the well with fair accuracy. This is evident from low values of Normalized Root Mean Square Error and Relative Root Mean Square Error and high values of Nash-Sutcliffe Efficiency Index and Correlation Coefficient (which are taken as the performance measures to calibrate the networks) calculated after the analysis. On comparison of ground water levels predicted with those at the observation well, FFNN trained with Fletcher Reeves Conjugate Gradient algorithm taken four inputs has outperformed all other combinations.

Application of Artificial Neural Networks and Particle Swarm Optimization for the Management of Groundwater Resources

Ground management problems are typically solved by the simulation-optimization approach where complex numerical models are used to simulate the groundwater flow and/or contamination transport. These numerical models take a lot of time to solve the management problems and hence become computationally expensive. In this study, Artificial Neural Network (ANN) and Particle Swarm Optimization (PSO) models were developed and coupled for the management of groundwater of Dore river basin in France. The Analytic Element Method (AEM) based flow model was developed and used to generate the dataset for the training and testing of the ANN model. This developed ANN-PSO model was applied to minimize the pumping cost of the wells, including cost of the pipe line. The discharge and location of the pumping wells were taken as the decision variable and the ANN-PSO model was applied to find out the optimal location of the wells. The results of the ANN-PSO model are found similar to the results obtained by AEM-PSO model. The results show that the ANN model can reduce the computational burden significantly as it is able to analyze different scenarios, and the ANN-PSO model is capable of identifying the optimal location of wells efficiently.

An 8-to-1 bit 1-MS/s SAR ADC With VGA and Integrated Data Compression for Neural Recording

Low power consumption per channel and data rate minimization are two key challenges which need to be addressed in future generations of neural recording systems (NRS). Power consumption can be reduced by avoiding unnecessary processing whereas data rate is greatly decreased by sending spike time-stamps along with spike features as opposed to raw digitized data. Dynamic range in NRS can vary with time due to change in electrode-neuron distance or background noise, which demands adaptability. An analog-to-digital converter (ADC) is one of the most important blocks in a NRS. This paper presents an 8-bit SAR ADC in 0.13-mu m CMOS technology along with input and reference buffer. A novel energy efficient digital-to-analog converter switching scheme is proposed, which consumes 37% less energy than the present state-of-the-art. The use of a ping-pong input sampling scheme is emphasized for multichannel input to alleviate the bandwidth requirement of the input buffer. To reduce the data rate, the A/D process is only enabled through the in-built background noise rejection logic to ensure that the noise is not processed. The ADC resolution can be adjusted from 8 to 1 bit in 1-bit step based on the input dynamic range. The ADC consumes 8.8 mu W from 1 V supply at 1 MS/s speed. It achieves effective number of bits of 7.7 bits and FoM of 42.3 fJ/conversion-step.

Use of Data Driven Techniques for Short Lead Time Streamflow Forecasting in Mahanadi basin

Streamflow forecasts at daily time scale are necessary for effective management of water resources systems. Typical applications include flood control, water quality management, water supply to multiple stakeholders, hydropower and irrigation systems. Conventionally physically based conceptual models and data-driven models are used for forecasting streamflows. Conceptual models require detailed understanding of physical processes governing the system being modeled. Major constraints in developing effective conceptual models are sparse hydrometric gauge network and short historical records that limit our understanding of physical processes. On the other hand, data-driven models rely solely on previous hydrological and meteorological data without directly taking into account the underlying physical processes. Among various data driven models Auto Regressive Integrated Moving Average (ARIMA), Artificial Neural Networks (ANNs) are most widely used techniques. The present study assesses performance of ARIMA and ANNs methods in arriving at one-to seven-day ahead forecast of daily streamflows at Basantpur streamgauge site that is situated at upstream of Hirakud Dam in Mahanadi river basin, India. The ANNs considered include Feed-Forward back propagation Neural Network (FFNN) and Radial Basis Neural Network (RBNN). Daily streamflow forecasts at Basantpur site find use in management of water from Hirakud reservoir. (C) 2015 The Authors. Published by Elsevier B.V.

Spray: A Multi-Modal Localization System for Stationary Sensor Network Deployment

We present a localization system that targets rapid deployment of stationary wireless sensor networks (WSN). The system uses a particle filter to fuse measurements from multiple localization modalities, such as RF ranging, neighbor information or maps, to obtain position estimations with higher accuracy than that of the individual modalities. The system isolates different modalities into separate components which can be included or excluded independently to tailor the system to a specific scenario. We show that position estimations can be improved with our system by combining multiple modalities. We evaluate the performance of the system in both an indoor and outdoor environment using combinations of five different modalities. Using two anchor nodes as reference points and combining all five modalities, we obtain RMS (Root Mean Square) estimation errors of approximately 2.5m in both cases, while using the components individually results in errors within the range of 3.5 and 9 m.