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.

Neural network approach for fault location in unbalanced distribution networks with limited measurements

This paper presents an Artificial Neural Network (ANN) approach for locating faults in distribution systems. Different from the traditional Fault Section Estimation methods, the proposed approach uses only limited measurements. Faults are located according to the impedances of their path using a Feed Forward Neural Networks (FFNN). Various practical situations in distribution systems, such as protective devices placed only at the substation, limited measurements available, various types of faults viz., three-phase, line (a, b, c) to ground, line to line (a-b, b-c, c-a) and line to line to ground (a-b-g, b-c-g, c-a-g) faults and a wide range of varying short circuit levels at substation, are considered for studies. A typical IEEE 34 bus practical distribution system with unbalanced loads and with three- and single- phase laterals and a 69 node test feeder with different configurations are considered for studies. The results presented show that the proposed approach of fault location gives close to accurate results in terms of the estimated fault location.

Intelligent prediction of the stress-strain response of intact and jointed rocks

An application of Artificial Neural Networks for predicting the stress-strain response of jointed rocks under different confining pressures is presented in this paper. Rocks of different compressive strength with different joint properties (frequency, orientation and strength of joints) are considered in this study. The database for training the neural network is formed from the results of triaxial compression tests on different intact and jointed rocks with different joint properties tested at different confining pressures reported by various researchers in the literature. The network was trained using a three-layered network with the feed-forward back propagation algorithm.About 85% of the data was used for training and the remaining 15% was used for testing the network. Results from the analyses demonstrated that the neural network approach is effective in capturing the stress-strain behaviour of intact rocks and 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 jointed rocks, whose intact strength varies from 11.32 MPa to 123 MPa, spacing of joints varies from 10 cm to 100 cm. and confining pressures range from 0 to 13.8 MPa. (C) 2010 Elsevier Ltd. All rights reserved.

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.

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.

Social insect colony as a biological regulatory system: modelling information flow in dominance networks

Social insects provide an excellent platform to investigate flow of information in regulatory systems since their successful social organization is essentially achieved by effective information transfer through complex connectivity patterns among the colony members. Network representation of such behavioural interactions offers a powerful tool for structural as well as dynamical analysis of the underlying regulatory systems. In this paper, we focus on the dominance interaction networks in the tropical social wasp Ropalidia marginata-a species where behavioural observations indicate that such interactions are principally responsible for the transfer of information between individuals about their colony needs, resulting in a regulation of their own activities. Our research reveals that the dominance networks of R. marginata are structurally similar to a class of naturally evolved information processing networks, a fact confirmed also by the predominance of a specific substructure-the `feed-forward loop'-a key functional component in many other information transfer networks. The dynamical analysis through Boolean modelling confirms that the networks are sufficiently stable under small fluctuations and yet capable of more efficient information transfer compared to their randomized counterparts. Our results suggest the involvement of a common structural design principle in different biological regulatory systems and a possible similarity with respect to the effect of selection on the organization levels of such systems. The findings are also consistent with the hypothesis that dominance behaviour has been shaped by natural selection to co-opt the information transfer process in such social insect species, in addition to its primal function of mediation of reproductive competition in the colony.

A Comparison of Machine Learning Techniques for Modeling River Flow Time Series: The Case of Upper Cauvery River Basin

Models of river flow time series are essential in efficient management of a river basin. It helps policy makers in developing efficient water utilization strategies to maximize the utility of scarce water resource. Time series analysis has been used extensively for modeling river flow data. The use of machine learning techniques such as support-vector regression and neural network models is gaining increasing popularity. In this paper we compare the performance of these techniques by applying it to a long-term time-series data of the inflows into the Krishnaraja Sagar reservoir (KRS) from three tributaries of the river Cauvery. In this study flow data over a period of 30 years from three different observation points established in upper Cauvery river sub-basin is analyzed to estimate their contribution to KRS. Specifically, ANN model uses a multi-layer feed forward network trained with a back-propagation algorithm and support vector regression with epsilon intensive-loss function is used. Auto-regressive moving average models are also applied to the same data. The performance of different techniques is compared using performance metrics such as root mean squared error (RMSE), correlation, normalized root mean squared error (NRMSE) and Nash-Sutcliffe Efficiency (NSE).

On Bounded Strictly Positive Operators of Closed Range and Some Applications to Asymptotic Hyperstability of Dynamic Systems

The problem discussed is the stability of two input-output feedforward and feedback relations, under an integral-type constraint defining an admissible class of feedback controllers. Sufficiency-type conditions are given for the positive, bounded and of closed range feed-forward operator to be strictly positive and then boundedly invertible, with its existing inverse being also a strictly positive operator. The general formalism is first established and the linked to properties of some typical contractive and pseudocontractive mappings while some real-world applications and links of the above formalism to asymptotic hyperstability of dynamic systems are discussed later on.

Various algorithms for optimization and learning in adaptive systems

This thesis discusses various methods for learning and optimization in adaptive systems. Overall, it emphasizes the relationship between optimization, learning, and adaptive systems; and it illustrates the influence of underlying hardware upon the construction of efficient algorithms for learning and optimization. Chapter 1 provides a summary and an overview.

Chapter 2 discusses a method for using feed-forward neural networks to filter the noise out of noise-corrupted signals. The networks use back-propagation learning, but they use it in a way that qualifies as unsupervised learning. The networks adapt based only on the raw input data-there are no external teachers providing information on correct operation during training. The chapter contains an analysis of the learning and develops a simple expression that, based only on the geometry of the network, predicts performance.

Chapter 3 explains a simple model of the piriform cortex, an area in the brain involved in the processing of olfactory information. The model was used to explore the possible effect of acetylcholine on learning and on odor classification. According to the model, the piriform cortex can classify odors better when acetylcholine is present during learning but not present during recall. This is interesting since it suggests that learning and recall might be separate neurochemical modes (corresponding to whether or not acetylcholine is present). When acetylcholine is turned off at all times, even during learning, the model exhibits behavior somewhat similar to Alzheimer's disease, a disease associated with the degeneration of cells that distribute acetylcholine.

Chapters 4, 5, and 6 discuss algorithms appropriate for adaptive systems implemented entirely in analog hardware. The algorithms inject noise into the systems and correlate the noise with the outputs of the systems. This allows them to estimate gradients and to implement noisy versions of gradient descent, without having to calculate gradients explicitly. The methods require only noise generators, adders, multipliers, integrators, and differentiators; and the number of devices needed scales linearly with the number of adjustable parameters in the adaptive systems. With the exception of one global signal, the algorithms require only local information exchange.

A novel FOCAL technique based on BP-ANN

In this paper, the feed-forward back-propagation artificial neural network (BP-ANN) algorithm is introduced in the traditional Focus Calibration using Alignment procedure (FOCAL) technique, and a novel FOCAL technique based on BP-ANN is proposed. The effects of the parameters, such as the number of neurons on the hidden-layer and the number of training epochs, on the measurement accuracy are analyzed in detail. It is proved that the novel FOCAL technique based on BP-ANN is more reliable and it is a better choice for measurement of the image quality parameters. (c) 2005 Elsevier GmbH. All rights reserved.

Biologically-inspired object recognition system with features from complex wavelets

In this paper, a novel cortex-inspired feed-forward hierarchical object recognition system based on complex wavelets is proposed and tested. Complex wavelets contain three key properties for object representation: shift invariance, which enables the extraction of stable local features; good directional selectivity, which simplifies the determination of image orientations; and limited redundancy, which allows for efficient signal analysis using the multi-resolution decomposition offered by complex wavelets. In this paper, we propose a complete cortex-inspired object recognition system based on complex wavelets. We find that the implementation of the HMAX model for object recognition in [1, 2] is rather over-complete and includes too much redundant information and processing. We have optimized the structure of the model to make it more efficient. Specifically, we have used the Caltech 5 standard dataset to compare with Serre's model in [2] (which employs Gabor filter bands). Results demonstrate that the complex wavelet model achieves a speed improvement of about 4 times over the Serre model and gives comparable recognition performance. © 2011 IEEE.

黄土区不同土地利用方式下径流量的神经网络模拟

基于黄土坡面降雨—径流关系的复杂性且非线性特性,引用3层前馈型BP网络模型,对不同土地利用方式(草灌地、刈割地、翻耕地)径流量进行模拟,以植被盖度、降雨强度、坡度、土壤前期含水率和土壤容重5个因子作为输入层变量,次降雨下径流量作为输出层变量,并利用野外人工模拟降雨试验所得到不同降雨强度下各类土地利用径流小区的径流量实测资料,对网络进行模拟训练和预测,取得了较好的结果,平均误差不超过10%。研究结果表明,与传统回归统计方法进行了误差比较,该模型的预测精度更高。

干旱下植物气孔运动的调控

概述了植物气孔对大气干旱和土壤干旱的反应 ,认为植物气孔对大气干旱的反应并不是一种反馈机制 ;并就干旱条件下植物气孔运动的水力学和化学信号调控机制进行了简要论述 ,认为虽然化学信号调控干旱下气孔运动更为广泛 ,但 ABA不是唯一的化学信号 ,水分关系影响了信号的产生、运转和气孔对信号的敏感性 ,干旱条件下水力学和化学信号共同调控着植物的气孔运动