Prepare for takeoff: improving asset measurement and audit quality with drone-enabled inventory audit procedures

• Published in: Review of accounting studies 2021-12, Vol.26 (4), p.1323-1343
• Main Authors: Christ, Margaret H., Emett, Scott A., Summers, Scott L., Wood, David A.
• Format: Article
• Language: English
• Subjects: Accounting/Auditing; Audit quality; Audits; Business and Management; Corporate Finance; Public Finance
• ISSN: 1380-6653; 1573-7136
• DOI: 10.1007/s11142-020-09574-5

Auditors increasingly employ technologies to improve audit quality. Using a design science approach, we examine whether using drones and automated counting software can improve audit quality and thus financial reporting. We assess three dimensions of audit quality—efficiency, effectiveness, and quality of documentation. We show that auditors can perform inventory counts with these technologies much more efficiently than they can with manual techniques, decreasing count time in our study from 681 h to 19 h. Similarly, auditors can maintain or improve audit effectiveness, decreasing error rates in our study from 0.15% to 0.03% while providing higher-quality audit documentation. Interviews with national-level partners and audit standard setters highlight impediments to adopting these technologies, including firm concerns about being first movers combined with inability of standard setters to provide guidance at a pace that matches the pace of technological development. Collectively, our results suggest that technology-enabled inventory audits can improve audit quality and further regulatory guidance on using such technologies would enhance adoption.