Long-Term Impact of Economic Conditions on Auditors’ Judgment

54 Pages Posted: 21 Feb 2018 Last revised: 3 Oct 2018

See all articles by Xianjie He

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Tusheng Xiao

Central University of Finance and Economics

Luo Zuo

National University of Singapore; Cornell University

Multiple version iconThere are 2 versions of this paper

Date Written: September 25, 2018

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 early-career stage is a critical formative period for auditors.

Keywords: economic condition; audit adjustment; imprinting

JEL Classification: J24, M42

Suggested Citation

He, Xianjie and Kothari, S.P. and Xiao, Tusheng and Zuo, Luo, Long-Term Impact of Economic Conditions on Auditors’ Judgment (September 25, 2018). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3121747

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Tusheng Xiao

Central University of Finance and Economics ( email )

39 South College Road, Haidian District, Beijing
Beijing, 100081
China

Luo Zuo (Contact Author)

National University of Singapore ( email )

Cornell University ( email )

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