The article Artificial Intelligence in Auditing: How Auditor AI Use Can Mitigate Legal Liability by Robert Libby and Patrick D. Witz explores the transformative impact of artificial intelligence (AI) on the audit profession, particularly in reducing legal liability associated with independence concerns. The research investigates whether the incorporation of AI in audit processes can address juror perceptions of bias and negligence when auditor independence appears compromised.
The study highlights the longstanding tension faced by audit firms: fostering client relationships for operational benefits while maintaining the appearance of independence to avoid legal repercussions. Independence concerns often arise when auditors have close relationships with clients, leading to increased litigation risk and perceptions of bias. These issues are compounded by the subjective judgment required in auditing, making firms vulnerable to negligence claims.
Libby and Witz conducted experiments with mock jurors, exposing them to scenarios where auditors either used human judgment or relied on AI for analytical procedures. They manipulated the perceived level of independence conflicts by varying descriptions of the auditor-client relationship. Results showed that the use of AI significantly reduced perceptions of negligence, even when independence concerns were present. Mock jurors assessed a 51% probability of negligence with AI compared to 65% with human auditors under high independence conflict scenarios. Similarly, binary negligence verdicts dropped from 77% to 53%, and damage awards were reduced by 41% when AI was involved.
The mitigating effect of AI is attributed to its ability to enhance perceived objectivity and trust in the audit process. Jurors viewed AI-driven audits as more impartial, even acknowledging that human oversight was involved in assigning and reviewing AI outputs. This reinforces the idea that AI can serve as a buffer against accusations of auditor bias, thereby reducing legal liability.
The findings suggest actionable insights for practitioners. Audit firms are encouraged to integrate AI across various audit functions, not only to improve efficiency but also to strengthen legal defenses against claims of bias. Defense attorneys could leverage the objectivity associated with AI to craft compelling arguments in litigation, while regulators might consider these insights when revising independence standards.
The study concludes that while AI offers promising benefits in mitigating liability, its adoption must be accompanied by consistent application, robust training, and transparent communication about its role in audits. These measures are crucial for maximizing AI’s potential to bolster trust and objectivity in auditing.
For further details, the study can be accessed in Current Issues in Auditing here.