Accounting firms are reporting the use of Artificial Intelligence in their auditing and advisory functions, citing benefits such as time savings, faster data analysis, increased levels of accuracy, more in-depth insight into business processes, and enhanced client service. AI, an emerging technology that aims to mimic the cognitive skills and judgment of humans, promises competitive advantages to the adopter. As a result, all the Big 4 firms are reporting its use and their plans to continue with this innovation in areas (...) such as audit planning risk assessments, tests of transactions, analytics, and the preparation of audit work-papers, among other uses. As the uses and benefits of AI continue to emerge within the auditing profession, there is a gradual awakening to the fact that unintended consequences may also arise. Thus, we heed to the call of numerous researchers to not only explore the benefits of AI but also investigate the ethical implications of the use of this emerging technology. By combining two futuristic ethical frameworks, we forecast the ethical implications of the use of AI in auditing, given its inherent features, nature, and intended functions. We provide a conceptual analysis of the practical ethical and social issues surrounding AI, using past studies as well as our inferences based on the reported use of the technology by auditing firms. Beyond the exploration of these issues, we also discuss the responsibility for the policy and governance of emerging technology. (shrink)

Ethics has been identified as an important factor that potentially affects auditors’ professional skepticism. For example, prior research finds that auditors who are more concerned with professional ethics exhibit greater professional skepticism. Further, the literature suggests that professional skepticism may lead the auditor to more vigilantly resist the client’s position in financial reporting disputes. These reporting disputes are generally resolved through negotiations between the auditor and client to arrive at the final reported amounts. To date, the role that professional skepticism (...) potentially plays in the negotiation process has been relatively unexplored. The literature prior to the enactment of Sarbanes–Oxley (SOX) suggests that auditors are more likely to approve a client position when the matter in dispute is relatively ambiguous and when changing the client’s position will result in the client failing to meet analysts’ expectations. However, changes resulting from SOX have led auditors to be more vigilant and therefore results found in the pre-SOX environment may not hold in the current environment where auditors are held more accountable for their actions. Results from an experiment with experienced audit managers and partners suggest that in the post-SOX climate, auditors’ negotiations do not appear to be substantively influenced by management being able to meet or beat forecasts. Moreover, we find that when auditors exhibit heightened professional skepticism, they are more ethical by being conservative and they stand more resolute than when auditors do not exhibit heightened professional skepticism. Finally, although we do not find a main effect for the influence of earnings forecast, we do find a significant interaction between earnings forecast and heightened professional skepticism. Implications for practice and research are then presented. (shrink)