Technological Investment, Auditor Revenue, and Discretionary Accruals: A Capability-Based Analysis of U.S. Indexed Companies

Abstract

Technological investment improves audit quality or signals modernization. Prior audit technology research treats technological investment as homogeneous, leaving unclear whether audit-quality gains arise from digital infrastructure, technology-oriented human capital, or organizational capacity. This study examines whether audit-firm technological investment reduces discretionary accruals and whether auditor revenue and audit firm size condition this relationship. Using 2,550 firm-year observations from Nasdaq100 and S&P 500 companies during 2019–2023, this study applies Two-Stage Least Squares regression, Sobel testing, Heckman correction, Propensity Score Matching, a Dechow-based accrual measure, and client-complexity tests. Results show that investment in technology assets and technology human capital reduces discretionary accruals, with coefficients of -0.210 and -0.355, respectively. Auditor revenue strengthens these effects through interactions for IT_AS × AR (-0.142) and IT_HC × AR (-0.198), while audit firm size is negatively associated with discretionary accruals (-0.251). Robustness analyses confirm these effects after addressing endogeneity and selection concerns. Theoretically, the study extends Resource-Based View and Dynamic Capability Theory by showing that audit technology creates value when supported by human expertise, economic capacity, and organizational structure. Practically, findings urge audit firms and regulators to treat technological capability as a substantive audit-quality resource.