Long-Term Impact of Economic Conditions on Auditors’ Judgment

54 Pages Posted: 5 Jan 2017 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

Cornell University - Samuel Curtis Johnson Graduate School of Management

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=2892107 or http://dx.doi.org/10.2139/ssrn.2892107

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)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/faculty-research/faculty/lz352/

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