Resource Constraints at Audit Offices and Audit Quality: Evidence from Auditing Clients with Natural Disasters

Like JIANG, Daphne Sze Man LAU, Lixin Nancy SU, Ho Yin WONG

Research output: Other Conference ContributionsAbstract

Abstract

This study examines whether and how resource constraints under busy situation at an audit office influences audit quality. We leverage on natural disasters that introduce exogenous variations in audit office busyness to tackle the endogeneity arising from the commonly used busyness measures (e.g., clientele size). Specifically, we posit that audit offices with disaster-affected clients are busy offices, because disaster-affected clients demand significant additional effort from an audit office and hence stress the resources available to the other non-disaster-affected clients audited by the same office. We find that, compared to clients audited by non-busy audit offices, non-disaster-affected clients audited by busy audit offices exhibit an increased likelihood of restatements and greater absolute discretionary accruals, consistent with auditor busyness adversely affecting audit quality. We further find that such negative effect is more pronounced when the degree of audit office busyness is greater as well as when the busy office is less likely to alleviate the resource constraints. Our study provides new insights on the implications of audit office resource allocation.
Original languageEnglish
Publication statusPublished - 14 Aug 2019
EventAmerican Accounting Association Annual Meeting 2019 - San Francisco, United States
Duration: 10 Aug 201914 Sep 2019
https://aaahq.org/Meetings/2019/Annual-Meeting

Conference

ConferenceAmerican Accounting Association Annual Meeting 2019
CountryUnited States
CitySan Francisco
Period10/08/1914/09/19
Internet address

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    JIANG, L., LAU, D. S. M., SU, L. N., & WONG, H. Y. (2019). Resource Constraints at Audit Offices and Audit Quality: Evidence from Auditing Clients with Natural Disasters. Abstract from American Accounting Association Annual Meeting 2019, San Francisco, United States.