Impact of COVID-19 pandemic on auditors’ responsibility: evidence from European listed companies on key audit matters

Camelia-Daniela Hațegan · Ruxandra-Ioana Pitorac · Andreea Claudia Crucean

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Auditing, Earnings Management, Governance COVID-19 Pandemic Impacts Corporate Governance and Financial Management

Abstract

Purpose This research seeks to assess the impact of the COVID-19 pandemic on the quality of financial reporting and the auditor's responsibility. This paper aims to investigate how the auditors identified the impact of COVID-19 on the companies' annual financial statements and considered this impact as a key audit matters (KAM) in the reports issued and the factors that influenced their reporting. Design/methodology/approach The empirical research consists of a qualitative analysis of KAMs and a quantitative one based on a panel data econometric model using a random effects maximum likelihood regression. The sample includes companies listed on the primary market on European stock exchanges in 2019–2020. Findings The results suggest a direct positive correlation between numbers of KAMs and the auditor's size, frequency of the event and going concern uncertainty. Two of the variables were not validated: auditor rotation and audit fees. Research limitations/implications The limitation of research can be the sample structure, and the model we proposed does not take into account all possible influencing factors. Practical implications This study will help researchers, policymakers and business owners have a deeper understanding of auditors' responsibility in their work. As practical implications of the COVID-19 impact following the implementation of telework, audit firms have begun to invest in digital programs to assist them in their teamwork and communication with clients. One impact on regulators has been to relax reporting requirements by extending deadlines. Originality/value This research contributes to the academic literature by providing a synthesis and econometric model of the effects identified by auditors, following the COVID-19 pandemic, expressed by KAMs in their reports.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1992STAKEHOLDER‐AGENCY THEORY 2013Attention and choice: A review on eye movements in decision making 2018The Informational Value of Key Audit Matters in the Auditor's Report: Evidence from an Eye-Tracking Study 2014Do Critical Audit Matter Paragraphs in the Audit Report Change Nonprofessional Investors' Decision to Invest?2020Auditing in times of social distancing: the effect of COVID-19 on auditing quality 2019Understanding the determinants of the magnitude of entity-level risk and account-level risk key audit matters: The case of the United Kingdom 2018What matters in disclosures of key audit matters: Evidence from Europe

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2022Guest editorial: The COVID-19 pandemic: a catalyst for digital transformation 2024Key audit matters and auditing quality in the era of COVID-19 pandemic: the case of Jordan 2023Evaluation of ownership structure and audit-quality in the wake of the Covid-19 crisis: empirical evidence from Jordan 2023COVID-19 Pandemic, Internal Audit Function and Audit Report Lag: Evidence from Emerging economy

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