<![CDATA[Artificial Intelligence (AI) is increasingly recognized as a key driver of technological upgrading and digital transformation in emerging economies. However, its contribution extends beyond operational efficiency, requiring institutional adaptation to ensure effective governance in increasingly digitalized production systems. Drawing on evolutionary economics and institutional economics, this study examines the relationship between AI adoption, process digitalization, and audit quality within Indonesia's manufacturing sector. AI adoption is conceptualized as technological upgrading, process digitalization as organizational structural transformation, and audit quality as an indicator of institutional adaptation. This study employs a quantitative explanatory design using survey data collected from 125 internal and external auditors with experience auditing manufacturing firms listed on the Indonesia Stock Exchange. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to evaluate both direct and indirect relationships among the proposed constructs. The findings indicate that AI adoption significantly enhances process digitalization and directly improves audit quality. Process digitalization also exerts a significant positive effect on audit quality and partially mediates the relationship between AI adoption and institutional governance outcomes. These results suggest that technological innovation generates broader organizational benefits when supported by integrated digital processes that strengthen transparency, accountability, and information reliability.]]>
