Air Pollution, Auditors' Affective States, and Audit Quality

Li Li, Xuejiao Liu, Wenqi Pei and Yifei Xia

Accounting and Finance, 2025, vol. 65, issue 3, 3142-3173

Abstract: This study examines the impact of auditors' negative affective states, proxied by their exposures to client cities' air pollution, on audit quality. We first provide survey evidence that auditors spend considerable time in their clients' cities during the annual audit period and they perceive air pollution to trigger negative effects that impair their capacity to deliver high‐quality audits. Our archival results show that, when client cities experience heavier air pollution during the annual audit period, auditors become less likely to issue modified audit opinions and their clients' absolute discretionary accruals and below‐the‐line items are significantly higher. Further analyses show that this effect is mitigated by auditors' experience but not the social trust levels of their located provinces, suggesting that auditors' negative affective states harm audit quality by impairing auditors' cognitive function rather than motivating them to undertake unethical decisions. We find no association between air pollution and audit fee or audit delay, suggesting that air pollution‐triggered negative effects do not impair audit quality through reduced audit effort. Our results are robust to difference‐in‐difference analyses using the coal‐to‐gas policy and the 2008 Beijing Olympics as exogenous shocks. Collectively, our findings highlight the importance of auditors' emotions and moods in professional judgement and the role of environmental conditions in shaping auditor behaviour.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/acfi.70035

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:65:y:2025:i:3:p:3142-3173

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0810-5391

Access Statistics for this article

Accounting and Finance is currently edited by Robert Faff

More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().