Artificial Intelligence Investment, Realistic Reports, and Financial Loss

Abstract

During audit planning, auditors examine the business of different firms. Still, the target is to minimize the discrepancy in the real planned financial statement of inspection and summary reports of internal audits. On the other hand, expenditures on artificial intelligence have been increasing in Turkish firms; according to the National Artificial Strategy document, AI will be part of every organizational process, including internal audits. Moreover, the literature supports a positive relationship between internal audits and firms’ decreasing capital loss. So, this research aims to analyze the relationship between AI expenditures, internal audit reports, and the firms’ historical loss. To reach this aim, suitable data was analyzed from 732 incorporated companies that are members of the Chamber of Trade and Industry/Tekirdag/Turkey. Structural equation modeling results show that AI investments decrease the discrepancy between financial statements and internal audit reports (β=-0.045). On the other hand, discrepancies found in the internal audit reports compared to real financial statements are increasing firms’ financial losses by almost 10% (β=.118). In other words, investing in AI contributes to more realistic financial reports, resulting in fewer financial losses. From this perspective, this study is one of the leading studies that connects AI investment to internal audits and the financial performance of Turkish firms.