Better Sooner or Later: Effects of Adopting Drone-Enabled Inventory Observation on Auditor Liability
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Abstract
Audit firms have begun to explore the use of drones for inventory observation. Drones can fly around the inventory storage area and provide live-video streaming and recording of inventory counts, and drones with radio-frequency identification (RFID) tracking systems can also assist with verification of the client inventory records. Using drones can be particularly helpful in circumstances in which physical visits to the client may be impracticable, such as with the onset of a pandemic. Also, interviews with audit partners confirm that drones are likely to improve accuracy and completeness of inventory observation; however, these audit partners also expressed concern about the additional litigation and regulatory risk associated with adopting this new technology. Normality bias is often studied in the context of medical lawsuits, where a conventional medical practice is identified as the practice that is used widely in the industry; this is the context in which conventionality (i.e., using a practice which has been used previously) and normalcy (i.e., using a practice that is currently widely used in the reference group) coincide. An audit practice is a little different. In an audit, benefits of a new audit technology can be relatively easily measured by the speed, completeness, and accuracy of the data analysis. In this study, we investigate whether the use of drones for inventory observation in an audit will interact with industry norms consistency in affecting jurors’ negligence assessments when an audit failure occurs. We manipulate the inventory observation approach as involving either drones or human staff, while we also describe that the inventory observation method utilized either was consistent or was not consistent with the approach used by many other audit firms at the time of the audit.
