Digital inventory audits: an alternative approach to physical observation in audit evidence gathering

Lazarus Elad Fotoh

Journal of Accounting Literature, 2025, vol. 47, issue 5, 211-248

Abstract: Purpose - This study examines whether digital streaming and observation technologies can serve as an alternative approach for collecting inventory audit evidence, the challenges faced in their adoption and the factors contributing to their non-adoption. Design/methodology/approach - This study adopts a two-stage, mixed-method approach, beginning with pilot study interviews that informed the comprehensive survey with qualitative and quantitative data. Quantitative data were analyzed using descriptive statistics,t-tests and Pearson’s correlation coefficient, while qualitative data were analyzed using qualitative content analysis. Findings - Our findings revealed a positive perspective concerning the effectiveness and reliability of these technologies for inventory audits and the efficiency of internal controls within them, despite challenges such as obtaining a holistic view of the warehouse, observing obsolescence, ensuring inventory completeness and general reliability concerns. Additionally, preferences for physical inventory audits and skepticism about these technologies’ potential to enhance audit quality were identified as factors contributing to their non-adoption. Research limitations/implications - These findings have important implications for cost-conscious firms because they reveal that carefully adopting intermediate technologies can enhance the audit process. Our findings are relevant to audit regulators and firms interested in determining whether such technologies enhance audit efficiency and quality. This study highlights the need for updated auditing standards and directives and technologies that meet auditing requirements. Originality/value - This study contributes to the literature by uncovering whether less advanced technologies can be used as an alternative approach to collect audit evidence. Consequently, the finding adds to the growing body of literature underscoring the potential of technologies, even less sophisticated ones, to enhance the efficiency and effectiveness of audits, despite their challenges. Additionally, it underscores the need for clear regulatory standards, suggests that auditors embrace emerging technologies and acquire relevant skills and offers insights for technology developers on audit firms’ concerns regarding digital technologies.

Keywords: Inventory audits; Audit evidence; Physical observations; Digital technologies (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jalpps:jal-04-2024-0058

DOI: 10.1108/JAL-04-2024-0058

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