Are Auditors More Conservative in Their Year of Fate? Evidence from “Zodiac Year” Beliefs in China

Posted: 12 Jun 2023

See all articles by Weihua Zhang

Weihua Zhang

Beijing Technology and Business University

Caiyue Ouyang

Beijing Jiaotong University

Xin Wang

Beijing Technology and Business University

Wenxia Ge

University of Ottawa

Date Written: June 11, 2023

Abstract

Focusing on superstitious beliefs about bad luck in one’s zodiac year in China, which occurs in a 12-year cycle around a person’s birth year, we examine whether superstitions affect audit outcomes. Based on the personal data of Chinese engagement auditors, we find that those in their zodiac years are more likely to issue modified audit opinions, suggesting that they are more risk averse in their year of fate. Our cross-sectional analyses reveal that the effect of zodiac year beliefs on the likelihood of issuing modified audit opinions is concentrated among clients with high audit risk; that is, firms with higher bankruptcy risk, more internal control weaknesses, and lower institutional ownership, non-state-owned enterprises, and those with clients with low-reputation auditors. We also find that engagement auditors in their zodiac years are associated with greater audit efforts, higher audit fees, and smaller discretionary accruals. Our results highlight the real consequences of zodiac year beliefs on audit outcomes.

Keywords: audit opinion, audit risk, risk aversion, superstition, zodiac year

JEL Classification: D91, G32, M14, M42

Suggested Citation

Zhang, Weihua and Ouyang, Caiyue and Wang, Xin and Ge, Wenxia, Are Auditors More Conservative in Their Year of Fate? Evidence from “Zodiac Year” Beliefs in China (June 11, 2023). Available at SSRN: https://ssrn.com/abstract=4475741

Weihua Zhang

Beijing Technology and Business University ( email )

No. 11/33, Fucheng Road, Haidian District
Liangxiang
Beijing, 102488
China

Caiyue Ouyang

Beijing Jiaotong University

China

Xin Wang (Contact Author)

Beijing Technology and Business University ( email )

No. 11/33, Fucheng Road, Haidian District
Liangxiang
Beijing, 102488
China

Wenxia Ge

University of Ottawa ( email )

55 Laurier Avenue East
Ottawa, Ontario K1N 6N5
Canada

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