Exploring the Impact of Digital Transformation on Internal Audit Efficiency and Risk Coverage

Posted: Dec 10, 2023

• Anastasia Scott
• Reed Watson
• Hudson Ellis

Abstract

The contemporary business environment is characterized by unprecedented digital transformation, with organizations across sectors embracing advanced technologies to enhance operational efficiency and competitive positioning. Internal audit functions, traditionally viewed as compliance-oriented and methodologically conservative, face increasing pressure to transform their approaches to remain relevant in this rapidly evolving landscape. This research addresses a critical gap in the literature by systematically examining how digital transformation initiatives specifically impact internal audit efficiency and risk coverage capabilities. While previous studies have explored technological adoption in audit contexts, they have typically focused on isolated technologies or incremental improvements rather than comprehensive digital transformation. Our investigation is motivated by several pressing concerns in contemporary audit practice. First, the exponential growth in data volume and complexity has rendered traditional sampling-based audit approaches increasingly inadequate for comprehensive risk assessment. Second, the emergence of novel risk categories, particularly in cybersecurity, data privacy, and digital supply chains, demands more sophisticated detection and monitoring capabilities. Third, organizational expectations for internal audit functions have evolved beyond basic compliance to include strategic risk advisory and predictive analytics capabilities. This study introduces several novel contributions to the field. We develop and validate a comprehensive Digital Audit Maturity Model that assesses organizations across multiple dimensions of technological capability. We employ an innovative mixed-methods research design that combines quantitative efficiency metrics with qualitative risk coverage assessments. Most significantly, we identify and analyze several paradoxical relationships in digital audit transformation, including the finding that technological sophistication does not necessarily correlate with improved audit outcomes without corresponding changes in audit mindset and methodology.