Man Versus Machine: Complex Estimates and Auditor Reliance on Artificial Intelligence

39 Pages Posted: 19 Jul 2019 Last revised: 11 Mar 2020

See all articles by Benjamin P. Commerford

Benjamin P. Commerford

University of Kentucky, Gatton

Sean A. Dennis

University of Central Florida - Kenneth G. Dixon School of Accounting

Jennifer R. Joe

University of Delaware - Accounting & MIS

Jennifer Ulla

University of Kentucky, Gatton

Date Written: February 24, 2020

Abstract

Audit firms are investing billions of dollars to develop artificial intelligence (AI) systems that will help auditors execute challenging tasks (e.g., evaluating complex estimates). Although firms assume AI will enhance audit quality, a growing body of research documents that individuals often exhibit “algorithm aversion” – the tendency to discount computer-based advice more heavily than human advice, although the advice is identical otherwise. Therefore, we conduct an experiment to examine how algorithm aversion manifests in auditor judgments. Consistent with theory, we find that auditors receiving contradictory evidence from their firm’s specialist system (instead of a human specialist) propose smaller adjustments to management’s complex estimates, particularly when management develops their estimates using relatively objective (versus subjective) inputs. Our findings suggest auditor susceptibility to algorithm aversion could prove costly for the profession and financial statements users.

Keywords: Accounting Estimates, Auditing, Artificial Intelligence, Algorithm Aversion, Subjectivity

Suggested Citation

Commerford, Benjamin P. and Dennis, Sean A. and Joe, Jennifer R. and Ulla, Jennifer, Man Versus Machine: Complex Estimates and Auditor Reliance on Artificial Intelligence (February 24, 2020). Available at SSRN: https://ssrn.com/abstract=3422591 or http://dx.doi.org/10.2139/ssrn.3422591

Benjamin P. Commerford

University of Kentucky, Gatton ( email )

255 B&E Building
Lexington, KY
United States

Sean A. Dennis

University of Central Florida - Kenneth G. Dixon School of Accounting ( email )

University of Central Florida
P.O. Box 161400
Orlando, FL 32816-1400
United States

Jennifer R. Joe

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Jennifer Ulla (Contact Author)

University of Kentucky, Gatton ( email )

Lexington, KY 40506
United States

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