Prepare for Takeoff: Improving Asset Measurement and Audit Quality with Drone-Enabled Inventory Audit Procedures

Review of Accounting Studies

38 Pages Posted: 7 Mar 2019 Last revised: 26 Jun 2020

See all articles by Margaret H. Christ

Margaret H. Christ

University of Georgia - Terry College of Business

Scott A. Emett

Arizona State University (ASU) - School of Accountancy

Scott L. Summers

Brigham Young University - School of Accountancy

David A. Wood

Brigham Young University - School of Accountancy

Date Written: June 20, 2020

Abstract

Auditors increasingly employ technologies to improve audit quality. Using a design science approach, we examine whether using drones and automated counting software can improve audit quality and thereby improve financial reporting. We assess three dimensions of audit quality—efficiency, effectiveness, and quality of audit documentation. We provide evidence that auditors can perform inventory counts with these technologies much more efficiently than they can with manual techniques, decreasing count time in our study from 681 hours to 19 hours. At the same time, auditors can maintain or improve audit effectiveness with these technologies, decreasing error rates in our study from 0.15% to 0.03%, while providing higher-quality audit documentation. Interviews with national-level partners and audit standard setters highlight impediments to adopting these technologies, including firm concerns about being first movers combined with inability of standard setters to provide guidance at a pace that matches the pace of technological development. Collectively, our results suggest that technology-enabled inventory audits can improve audit quality, and further regulatory guidance on using such technologies would enhance adoption.

Keywords: Drones, Automated Software, Inventory Counting, Inventory, Design Science

JEL Classification: M4, M40, M41, M42, M49, O30, O31

Suggested Citation

Christ, Margaret H. and Emett, Scott A. and Summers, Scott L. and Wood, David A., Prepare for Takeoff: Improving Asset Measurement and Audit Quality with Drone-Enabled Inventory Audit Procedures (June 20, 2020). Review of Accounting Studies, Available at SSRN: https://ssrn.com/abstract=3335204 or http://dx.doi.org/10.2139/ssrn.3335204

Margaret H. Christ

University of Georgia - Terry College of Business ( email )

Athens, GA 30602-6254
United States
706-542-3602 (Phone)

Scott A. Emett

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Scott L. Summers

Brigham Young University - School of Accountancy ( email )

516 TNRB
Provo, UT 84602
United States
801-422-9790 (Phone)
801-422-0621 (Fax)

David A. Wood (Contact Author)

Brigham Young University - School of Accountancy ( email )

518 TNRB
Brigham Young University
Provo, UT 84602
United States
801-422-8642 (Phone)
801-422-0621 (Fax)

HOME PAGE: http://marriottschool.byu.edu/employee/employee.cfm?emp=daw44

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