Long-Term Impact of Economic Conditions on Auditors' Judgment
He, Xianjie, Kothari, S. P., Xiao, Tusheng, Zuo, Luo
The Accounting Review · 2018 · Volume 93 · Issue 6
Abstract
We find that economic conditions at the time an auditor enters the labor market have a long-term impact on her judgment and decision making. Specifically, engagement partners who started their career during economic downturns issue audit adjustments more frequently. For the subsample of company-years with no audit adjustments, downturn auditors are more likely to issue a modified audit opinion. In addition, companies audited by downturn auditors are less likely to violate financial reporting and disclosure regulations. Together, our findings suggest that the early career stage is a critical formative period for auditors. JEL Classifications:J24; M42.
Keywords
economic condition, audit adjustment, imprinting
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