Audit Analytics and Audit Outcomes: Diagnostic Applications and Financial Reporting Artifacts

Abstract

Despite the growth in data analytics technology, there exists a void of evidence regarding the impact of this evolving technology within the accounting literature. We utilize a sample of audit data analytics (ADA) implementations by internal audit functions to investigate the impact of audit data analytics technology (ADA) on audit outcomes. We find that the internal audit implementation of ADA is negatively associated with subsequent external audit fees and audit delays. We further find that these associations are moderated by the ADA application type, finding ADA technology focused on diagnostic analytics are negatively associated with subsequent audit fees as well as audit lags. Our findings and inferences are also validated by testing whether the effect is more salient for ADA specifically focused on financial reporting audit objectives. We also find validating evidence of lower material weaknesses, subsequent restatements, and discretionary accruals following ADA implementation by the internal audit function. This study contributes to the literature by providing archival evidence of benefits associated with data analytics technology and illustrates enhancements to the audit environment.