Abstract

This study aims to investigate the influence of blockchain and artificial intelligence on the audit quality of firms from Turkey. Primary data from 300 respondents are collected through random sampling to attain the study’s objectives. PLS-SEM is used to investigate the relationship between exogenous and endogenous variables. Our findings show that blockchain technologies and artificial intelligence (AI) utilization in their financial system positively impact audit quality by assisting in the audit process and the detection of fraud, which also improves financial reporting. Blockchain and Artificial Intelligence in the financial system create confidence for investors, stakeholders, and legislators. Moreover, this study advocated significant implications for investors, government, firms, and policymakers. Investors can make investment decisions based on the accuracy of the financial accounts; the government and policymakers can improve the governance mechanism by using the study’s findings.

Introduction

Audits play a vital role in ensuring compliance with laws, regulations, and accounting standards. Companies are subject to various regulatory requirements and must adhere to accounting principles and reporting frameworks [1]. High-quality audits provide independent assurance that these compliance requirements are met, reducing the risk of penalties, legal consequences, or reputational damage [2]. Quality audits contribute to effective corporate governance by holding management accountable and independently assessing the company’s financial reporting [3]. By examining internal controls and risk management processes, audits help identify weaknesses and areas for improvement, enhancing organizational transparency and accountability. Audits protect the interests of various stakeholders, including employees, customers, suppliers, and lenders [4]. By assuring the accuracy and reliability of financial statements, audits help safeguard the investments, jobs, and contractual relationships associated with a company. This promotes trust and stability in the business environment.

Auditing quality is an interesting research problem and is influenced by many factors such as the blockchain, Artificial Intelligence, professional skepticism, auditor independence, audit firm size, regulatory environment, technological advancements, and the adoption of innovative audit tools. Professional skepticism plays a pivotal role in audit quality [5]. Auditor independence, ensuring auditors maintain an unbiased stance, is fundamental for objective and reliable audit outcomes [6]. The audit firm size has been identified as a factor, with larger firms often having more resources and expertise to deliver higher-quality audits [7]. The regulatory environment and oversight mechanisms significantly impact audit quality, as stringent regulations and effective oversight contribute to a more robust auditing process [8]. Technological advancements and the adoption of innovative audit tools have emerged as crucial factors shaping audit quality in the contemporary business landscape [9]. Understanding the intricate interplay of these factors is essential for advancing research and enhancing the overall quality and effectiveness of auditing practices. Therefore, these factors are widely discussed in the previous literature in different demographic contexts but lack the investigation on Artificial Intelligence (AI) and blockchain technology in relation to audit quality in the modern world.

Conclusion and recommendations

Our findings show that AI improves audit quality by providing assistance and timely fraud detection. AI’s data analysis capabilities, ability to identify complex fraud patterns, and real-time monitoring contribute to more effective and efficient audits. As AI advances, it holds tremendous potential to enhance auditing practices’ overall quality and effectiveness. This study provides specific insights into the implications of these technologies within Turkey and also other varieties of implications for investors, management, stakeholders, and policymakers. The study assessed the level of adoption and readiness of Turkish auditing firms to embrace blockchain and AI technologies. It identified the factors influencing the adoption process, including organizational culture, infrastructure, resources, and regulatory environment. Understanding the current state of technology adoption in Turkey sheds light on the potential implications for audit quality.

The implications of blockchain and AI on fraud detection and risk assessment practices in Turkish audits can be explored. The study assessed how these technologies improve the ability to detect and prevent fraud, including identifying unusual patterns, real-time monitoring of transactions, and using predictive analytics. It can also examine the impact of risk assessment methodologies and the ability to assess risks accurately. The investor can invest by seeing the audit quality of the firms within Turkey to protect their investment, and the government can make the legislation in the weakness and delayed audit without enjoying the blockchain technologies and the other factors. Future research should be conducted on the efficiency of blockchain technology that is effective in the accounting system and preparation of the financial system that makes it easier for the technologies to improve the audit quality. Some more Blockchain units should be included in further research. Due to the limitation, we included one economy in our investigation; future research should include more than one and compare each economy, the use, and the efficiency of the artificial intelligence system.

Asymmetric information refers to some agents having more information than others. Corporate insiders are a good example of agents who have more valuable information than outsiders, giving them a greater depth of understanding of their companies (Hutton et al. 2009). This implies a violation of the strong form of market efficiency, and it seems that in a world of asymmetric information, insiders have useful information that is not necessarily reflected in the change of stock prices (Kim and Verrecchia 1997). Investors are always seeking ways to reduce information asymmetry. Information disclosure helps to improve firm-level transparency, which in turn reduces the risk to investors caused by information asymmetry (Clarkson et al. 1994; Healy and Palepu 2001). However, a long-held tenet of business enterprise in Western capitalist systems has been the primacy of capital providers in spurring investment and growth through profit maximisation, which has led to a limited focus on financial measurements and disclosure as a means to evaluate performance and the effective discharge of managerial accountability (Kim and Verrecchia 1991; Brockman et al. 2008; Rosa and Liberatore 2014). In recent years, the terms ‘corporate social responsibility’ (CSR) and ‘sustainability’ have become commonplace. There has been a growing awareness of the impact of corporate behaviour not only on shareholders but also on other stakeholders. Moreover, there has also been an increasing willingness to consider a greater variety of persons and groups to be ‘legitimate stakeholders’ with interests that deserve consideration, such as employees, customers, suppliers and creditors, as well as local communities, developing nations and the environment. Thus, a desire to encourage companies to act responsibly, to ensure development is sustainable and to allow all stakeholders to make informed assessments of corporate activities and practices necessarily leads to a consideration of disclosing CSR reports (or sustainability reports). Therefore, to ensure organisations’ long-term survival there are widespread attempts to incorporate social and environmental information into traditional financial reporting, which gives companies a means to report on how non-financial factors interact with financial ones and ultimately drive a company’s value (Mock et al. 2007; Thorne et al. 2014). However, the impact of a firm’s information disclosure on information asymmetry between managers and investors can only be effective if the firm’s disclosure is credible and relevant.

Against a backdrop of growing globalization and Internet use, worldwide financial markets have become increasingly more integrated over the last decade, prompting cross-border trade between developed countries, and the rapid growth of emerging economies (Lane and Miles-Ferretti, 2001, 2003, 2008). The globalization of financial markets has caused structural changes in capital markets across the world. In particular, modes of saving and investment in emerging economies induce structural changes in their financial markets as they become increasingly more open. Moreover, financial market liberalizations, accompanied by more financial and technical resources from advanced economies flow into the young emerging countries are expected to boost their domestic productivity and promoting market development (Kose et al., 2009). Capital market globalization strengthens the links between the financial markets of industrialized countries and emerging economies, and then encourages the trading of assets (e.g., bonds, shares, and currencies) between markets, banks, firms, and governments. Levine and Zervos (1996) show that financial liberalization results in an increase in stock market liquidity. Levin (2005) suggests that although the significant differences in financial market development across countries exist, the capital markets globalization allows emerging economies to obtain funds at substantially low costs in global capital market. Therefore, emerging economies can accumulate capital, and increase the size of local financial markets. Moreover, previous studies have observed that opening financial markets in emerging economies fosters the development of local financial intermediaries in the following ways: (1) By enabling local financial markets to expand, opening financial market renders financial intermediaries more efficient, causing monetary regulations to be lifted, and enabling floating interest rates to enhance competition between institutions, thereby reducing capital costs (Baldwin and Forslid, 2000).