Can Automation Reduce the Effect of Independence Conflicts on Audit Firm Liability?

Abstract

We conduct three experiments to examine whether increased automation can reduce the effects of independence conflicts on audit firm liability. Our experiments manipulate (1) whether procedures are performed by an auditor or an artificial intelligence and (2) whether the audit firm was careful in maintaining the appearance of independence from the audit client. Results of the first experiment identify that automation significantly reduces the effect of the appearance of independence conflicts on jurors’ judgments of audit firm liability. This effect is driven by changes in jurors’ trust in the audit process. A second experiment replicates this finding and provides additional process evidence, including evidence that jurors’ judgments are intentional. Our third experiment replicates the findings in a simpler setting with simpler manipulations to provide further robustness. Our study contributes to literature on auditor negligence, and advances understanding of how changes in the audit landscape might affect audit firm liability.