How do auditors respond to major emergencies? Empirical evidence from the COVID-19 pandemic

Weiming Xiang and Chen Ma

Managerial Auditing Journal, 2025, vol. 40, issue 5, 483-519

Abstract: Purpose - This study aims to explore how auditors respond to major emergencies, primarily based on the empirical evidence provided by the COVID-19 pandemic. Because, among professionals, Chinese auditors were the first to face the crisis and had to respond directly, this study seeks to assess the pandemic’s impact on the quality of information in the capital markets and the work of auditing. Design/methodology/approach - Considering data on nonfinancial A-share listed companies in China from 2019 to 2021, this study investigates the impact of a major pandemic on auditor response from the perspectives of audit report delay, audit fees and audit quality. The study further distinguishes the severity of the pandemic in the locations of review partners and engagement partners and examines its differential impact on audit outcomes. Findings - This study reveals that the impact of a major emergency on auditor response is mainly related to audit report delays and audit fees, while there is no significant effect on audit quality. Specifically, the increase of audit report delays is affected mainly by the severity of the pandemic in the location of the engagement partner, while the increase in audit fees is affected by the severity of the pandemic in the location of the review partner. In addition, the ordered logit test results indicate a pecking order in auditor response between audit report lag and audit fees. When serving clients experiencing lower pandemic severity, auditors prefer to cope with pandemic shocks by increasing audit inputs and extending the audit report lag. Only when the risk increases beyond a specific limit will auditors compensate for the potential future risk by raising the audit fees. Research limitations/implications - While this study provides valuable insights into auditor response during major emergencies, its focus on Chinese A-share listed firms may limit generalisability to other contexts. Future research could explore cross-cultural differences and include a broader sample to enhance the robustness of findings. Practical implications - The findings underscore the importance of robust risk management systems for audit firms to navigate through unexpected events effectively. This can guide audit firms in allocating resources efficiently, enhancing their preparedness to address future emergencies and safeguarding the interests of stakeholders. Social implications - The study’s identification of a gap between domestic and international audit firms in resilience to unexpected risks highlights the need for global collaboration and knowledge sharing. Addressing this gap can foster greater consistency and reliability in financial reporting, benefiting both domestic and international stakeholders. Originality/value - They show that the primary factor that impacts auditor response is the severity of the pandemic where the auditor works rather than the location of the audited client. The study object is refined to the level of the auditor office and the individual auditor. In addition, this study provides new empirical evidence that auditor response may be impacted by irrational factors (e.g. negative emotions). Furthermore, during the pandemic, international Big-4 audit firms reacted more smoothly to major emergencies and had less fluctuating audit results due to firms’ higher level of informatisation. These findings provide new perspectives for understanding and improving auditor response. They are also instructive for regulators and the audit industry in formulating policy and improving practice during similar crises.

Keywords: Major emergencies; Auditor response; Negative emotions; Audit report lag; Audit fees (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-04-2024-4308

DOI: 10.1108/MAJ-04-2024-4308

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