The Impact of Internal Auditors’ Data Analytics Use on the Reliability and Timeliness of Financial Reporting

We examine the extent to which internal auditors’ data analytics (DA) use is associated with improved financial reporting reliability and timeliness. Using data from a large survey among chief audit executives and data on public firms, we document a reduction in the likelihood of material weaknesses in internal controls over financial reporting and discretionary accruals at firms extensively using DA in internal audit tasks. Additionally, we find reductions in both the likelihood of restatements and the number of material weaknesses, as well as timelier earnings announcements. Next, we investigate and document a positive association between the use of several DA techniques in internal audit and financial reporting reliability and timeliness. Our findings inform researchers, practitioners, and standard setters by providing initial empirical evidence about the benefits of internal auditors’ use of DA in terms of financial reporting quality.