How Does Artificial Intelligence Shape the Audit Industry?

• In Event: Best Paper Award Winners

Abstract

This study examines whether the use of artificial intelligence (AI) technology in audit firms has a long-
term impact on the audit industry. We exploit the staggered hiring of personnel with AI skills at audit
office locations across the United States as a proxy for the implementation of AI technology at local
audit offices. We show in a difference-in-differences setting that relative to audit offices that do not
yet have any jobs requiring AI skills, audit offices that have jobs requiring AI skills experience an
increase in the number of auditor jobs. The effects are stronger when audit offices are in less
urbanized areas, and when audit offices have more jobs that could be replaced by AI. We estimate
instrumental variable regressions and show similar patterns. AI implementation also significantly
increases the skill and education requirements for auditor jobs. Last, we find that the hiring of auditors
with AI skills does not significantly lower audit and tax fees, but it does significantly reduce the
percentage of clients with adverse restatements and audit lag. Overall, our evidence indicates that AI
does not replace auditor jobs but leads to upskilling in auditor jobs and improves audit quality.

Authors

• Michael Shen, National University of Singapore

• Kelvin Law, Nanyang Technological University