Long-Term Impact of Economic Conditions on Auditors’ Judgment
54 Pages Posted: 5 Jan 2017 Last revised: 3 Oct 2018
Date Written: September 25, 2018
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: Suggested Citation