How Does Artificial Intelligence Shape Audit Firms?

Abstract

Does artificial intelligence (AI) displace auditors? We exploit the staggered hiring of AI employees at audit office locations across the United States as a proxy for the use of AI at local audit offices. The main findings are as follows. First, relative to audit offices that do not yet hire AI employees, those that do hire AI employees have a 4.3% increase in the number of auditor jobs, particularly among junior and midlevel auditors. Second, using AI is associated with an increased demand for soft skills (e.g., cognitive skills) in auditor jobs. Third, audit offices that use AI have more accurate going concern and internal control opinions. Semistructured interviews of 11 seasoned audit partners confirm that investment in AI is centralized at the national level, but the decision to deploy it often resides at the local audit office level. Notably, none of the partners believe that AI has replaced or will replace human auditors. Overall, our study—comprising both empirical and qualitative data—suggests that using AI does not replace auditors, but rather changes the skills required for these jobs and improves audit quality. This paper was accepted by Suraj Srinivasan, accounting. Funding: K. K. F. Law’s research is supported by the Start-Up Grant from Nanyang Technological University and the Ministry of Education (MOE), Singapore, under its Academic Research Fund Tier 1 [Grant RG128/20]. M. Shen’s research is supported by the Start-Up Grant from the National University of Singapore [Grant A-0003914-00-00] and the MOE under its Academic Research Fund Tier 1 [Grant A-8000098-00-00]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.04040 .