How Does Artificial Intelligence Shape Audit Firms?

66 Pages Posted: 27 Oct 2020 Last revised: 13 Dec 2021

See all articles by Kelvin Law

Kelvin Law

Nanyang Business School, Nanyang Technological University

Michael Shen

National University of Singapore

Date Written: July 12, 2020

Abstract

This study examines the impact of using artificial intelligence (AI) on audit firms. We exploit the
staggered job postings requiring AI skills at audit office locations across the United States as a proxy for the use of AI at local audit offices. First, we find that relative to audit offices that do not yet post any AI jobs, audit offices that post such jobs experience a 19% increase in the number of auditor jobs. Second, after posting AI jobs, these audit offices are also less likely to demand hard and technical computer/software skills, and more likely to demand soft and nontechnical skills for the same auditor job in the same audit office. Last, we find that these audit offices do not lower audit fees but significantly reduces the percentage of clients with adverse restatements and audit lag. Overall, our evidence indicates that using AI does not replace auditor jobs but changes the skill requirements in auditor jobs and improves audit quality.

Keywords: Artificial intelligence, auditors, machine learning, audit quality

JEL Classification: O33, M42, J6, J23, J24

Suggested Citation

Law, Kelvin and Shen, Michael, How Does Artificial Intelligence Shape Audit Firms? (July 12, 2020). Nanyang Business School Research Paper No. 20-31, Available at SSRN: https://ssrn.com/abstract=3718343 or http://dx.doi.org/10.2139/ssrn.3718343

Kelvin Law

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Michael Shen (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, Singapore 119245
Singapore

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