The Data Analytics Journey: Interactions Among Auditors, Managers, Regulation, and Technology*

Abstract

Data analytics is transforming our global markets and significantly impacting the financial reporting environment. We investigate how auditors, company managers, and regulation interact with data analytics and one another to affect the diffusion (i.e., development and spread) of data analytics throughout the financial reporting environment. We interview company managers and their audit partners, as well as additional stakeholders, including regulators. We interpret findings from our interviews using theory that highlights the importance of dynamic interactions between people and their environments, which include the prevailing rules (e.g., regulatory guidance). Our findings contribute to the accounting literature and practice by revealing three areas of conflict emerging from stakeholders' disparate preferences for data analytics. First, we uncover growing tensions between managers and audit partners regarding audit fees. Second, we find that managers and auditors believe the lack of accounting regulation specific to data analytics causes confusion and frustration. Finally, auditors report that they strategically leverage data analytics to provide clients with business‐related insights. However, regulators voice concerns that this practice might impair auditor independence and reduce audit quality. These areas of conflict suggest a need to revisit key tensions surrounding the audit function in a contemporary context characterized with significant technological shift.

A Framework for Using Robotic Process Automation for Audit Tasks*

“…A survey of more than 1,100 internal audit leaders in 40 countries indicates that while only 2% of companies are currently using RPA for internal audit tasks, that number will grow to 21% in the near future (Deloitte 2018a). External auditors are also moving toward using RPA to help with auditing procedures (L. Austin et al 2021). Companies are finding that auditors are burdened by repetitive activities in audit processes and that RPA may help reduce this burden while simultaneously freeing up auditors to focus on value-enhancing tasks that require problem solving, creativity, and human judgment (Deloitte 2018b;E&Y 2018;PwC 2018a).…”

“…Our study makes several important contributions to prior research and to practice. From a broad perspective, we contribute to the expanding line of research that is testing the effectiveness of emerging technologies within accounting settings (e.g., Dowling and Leech 2014;Pickard et al 2020;Hodge et al 2021;Austin et al 2021;Christ, Emett, et al 2021). This line of research has found mixed results regarding technology effectiveness, leaving many to question whether these emerging technologies have failed to achieve their expected benefits within accounting settings (Chen et al 2014;Han et al 2016;Fersht 2017;Reed 2018;Information Age 2019;Eulerich, Masli, et al 2021).…”

Behavioral challenges to professional skepticism in auditors’ data analytics journey

“…Audit firms around the globe have invested heavily into a variety of audit technologies (e.g., Alles and Gray 2016;Deloitte 2016;KPMG 2016KPMG , 2019EY 2018;PwC 2020;Eilifsen et al 2020;Austin et al 2021). Of these technological developments, audit data analytics (ADA) in particular are receiving increasing attention in auditing because they facilitate the incorporation of larger and more complex datasets as well as more diverse data sources into audit testing (e.g., FRC 2017).…”

“…Instead of incorporating only a limited number of data sources, ADA enable auditors to simultaneously compare data from a wider variety of sources (e.g., prior year balances, budgets, industry data, data from related accounts, and non-financial measures) as suggested by auditing standards such as ISA 520 (IAASB 2018). Hence, the use of ADA will enable auditors to potentially gain deeper insights into their clients' data and obtain a better understanding of the clients' business and environment compared to traditional methods (e.g., Brown-Liburd et al 2015;Cao et al 2015;Krahel and Titera 2015;Yoon et al 2015;FRC 2017;IAASB 2020cIAASB , 2021Austin et al 2021;PCAOB 2021a). The use of ADA is also expected to improve audit efficiency.…”

“…Besides potential benefits, research shows that ADA may also bring challenges to the appropriate application of professional skepticism (e.g., Appelbaum et al 2017;Rose et al 2017;Barr-Pulliam et al 2020;Holmstrom 2020;Austin et al 2021;Commerford et al 2021;Holt and Loraas 2021). Being alert to the potential behavioral challenges and exploring approaches of mitigating those challenges are critical for audit practice to fully utilize the benefits of ADA.…”