The Audit Implications of Cloud Computing

Over the last decade, many firms have shifted from in-house managed information systems to cloud computing arrangements. Despite regulatory interest in the audit impact of new technologies, little empirical work has studied how auditors behave when clients introduce cloud platforms into their accounting information system. Ex ante, it is unclear whether cloud computing allows for increased audit efficiency through reliance on service organization control reports or introduces additional complexity and risk to the audit. Leveraging a 2015 accounting standards update from the Financial Accounting Standards Board to identify material cloud users, we find that these firms pay an audit fee premium of approximately 5 percent compared to nonusers. This premium attenuates when hiring an audit office with more cloud users in its portfolio, suggesting that cloud audit experience can reduce auditors' costs when conducting such audits. We also explore how audit lag and subsequent restatements vary cross-sectionally with cloud use.