Article2018

Long-Term Impact of Economic Conditions on Auditors' Judgment

Xianjie He · S.P. Kothari · Tusheng Xiao · Luo Zuo

123 citations0/0 files storedThe Accounting Review

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Auditing, Earnings Management, Governance Accounting Education and Careers Corporate Governance and Financial Management

Abstract

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.

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References

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