Is Artificial Intelligence Improving the Audit Process?

Review of Accounting Studies, 27, 938–985 (2022)

73 Pages Posted: 26 May 2021 Last revised: 27 Dec 2022

See all articles by Anastassia Fedyk

Anastassia Fedyk

University of California, Berkeley - Haas School of Business

Tatiana Fedyk

University of San Francisco

James Hodson

AI for Good; Cognism; Jožef Stefan Institute

Natalya V. Khimich

Drexel University

Date Written: June 7, 2022

Abstract

How does artificial intelligence (AI) impact audit quality and efficiency? We explore this question by leveraging a unique dataset of more than 310,000 detailed individual resumes for the 36 largest audit firms to identify audit firms’ employment of AI workers. We provide a first look into the AI workforce within the auditing sector. AI workers tend to be male, relatively young, and hold mostly but not exclusively technical degrees. Importantly, AI is a centralized function within the firm, with workers concentrating in a handful of teams and geographic locations. Our results show that investing in AI helps improve audit quality, reduces fees, and ultimately displaces human auditors, although the effect on labor takes several years to materialize. Specifically, a one-standard-deviation change in recent AI investments is associated with a 5.0% reduction in the likelihood of an audit restatement, a 0.009 drop in log per client fees, and a reduction in the number of accounting employees that reaches 3.6% after three years and 7.1% after four years.

Keywords: technology, artificial intelligence, audit, product quality, efficiency, labor displacement

JEL Classification: O33, J23, L15, M42

Suggested Citation

Fedyk, Anastassia and Fedyk, Tatiana and Hodson, James and Khimich, Natalya V., Is Artificial Intelligence Improving the Audit Process? (June 7, 2022). Review of Accounting Studies, 27, 938–985 (2022), Available at SSRN: https://ssrn.com/abstract=3853231 or http://dx.doi.org/10.2139/ssrn.3853231

Anastassia Fedyk (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Tatiana Fedyk

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

James Hodson

AI for Good ( email )

800 Arlington Boulevard
El Cerrito, CA 94530
United States
9177449036 (Phone)
9177449036 (Fax)

HOME PAGE: http://ai4good.org

Cognism ( email )

92 Albert Embankment
London, SE17TT
United Kingdom

HOME PAGE: http://cognism.com

Jožef Stefan Institute ( email )

Jamova cesta 39
Ljubljana, 1000
Slovenia

HOME PAGE: http://ailab.ijs.si

Natalya V. Khimich

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

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