Topic: Man + machines: assessing the informativeness of critical audit matters identified by AI and human auditors

Speaker: Feng Guo, Iowa State University

Time: December 19, 2024, 10:00

Venue: EMS 206

Abstract:

We explore the potential value of generative artificial intelligence (AI) in identifying critical audit matter (CAM) topics and assess the informativeness of CAMs identified by AI and human auditors. We compare AI-generated CAMs with those reported by human auditors to evaluate their effectiveness in signaling financial reporting risks to investors. We further discern the overlapping and non-overlapping information between AI-generated CAMs and auditor-reported CAMs to investigate the (dis)advantages of AI relative to human auditors. While AI has superior information-processing capabilities and is less affected by human biases, it may be less informative than human auditors due to the lack of professional judgment and access to private client information. Our findings indicate that AI can predict approximately 37% of CAMs reported by auditors. Auditor-reported CAMs or AI-generated CAMs alone are generally not significantly associated with financial reporting risk or abnormal stock returns. However, the overlapping CAMs identified by auditors and generated by AI are significantly associated with financial reporting risk and abnormal stock returns, whereas CAMs identified exclusively by auditors or AI are not, suggesting a complementary role of generative AI and human auditors in identifying CAMs. Overall, our findings indicate that combining AI and auditor reports can help investors identify significant financial reporting risks and also highlight the information value of CAMs reported by human auditors.

Guest Bio:

Guo Feng, Professor at Iowa State University. His primary research areas include corporate governance, artificial intelligence, mergers and acquisitions, and auditing. His research has been published in top international journals such as The Journal of Finance, The Review of Financial Studies, The Journal of Financial and Quantitative Analysis, Contemporary Accounting Research, and Information Systems Research, which are ranked among UTD24/FT50. He currently serves as Associate Editor of Managerial Auditing Journal and is an anonymous reviewer for several international journals, including The Accounting Review, Contemporary Accounting Research, Management Science, Journal of Financial and Quantitative Analysis, and Auditing: A Journal of Practice and Theory.