Did the COVID-19 Lockdowns Lead to a Decline in Audit Quality?
TORONTO – Thursday, June 30, 2022 – New research from York University’s Schulich School of Business shows that audit quality declined as a result of COVID-19 travel restrictions and stay-at-home orders.
The findings are contained in the paper, “Audit Quality and COVID-19 Restrictions”, published in Managerial Auditing Journal. The article was co-written by Kiridaran (Giri) Kanagaretnam, Professor of Accounting and Ron Binns Chair in Financial Reporting, Banking and Governance at Schulich, together with Sabrina Gong, Nam Ho and Justin Yiqiang Jin.
“Our research findings suggest that engagements affected by the restrictions produced lower audit quality, as measured through restatements and discretionary accruals, relative to those completed before COVID-19 travel restrictions/stay-at-home orders,” said Kanagaretnam. “Restrictions on physical and on-site interaction caused auditors to universally struggle with resource and judgment intensive accounts such as inventory and R&D expenditures. Our results suggest that while Big 4 auditors managed to maintain their status quo level of audit quality following COVID-19 restrictions, non-Big 4 auditors were unable to overcome the challenges of an online work environment, and their audit quality declined.”
The study also raised an interesting question: although the pandemic will soon end, the likelihood that auditors continue using remote work environments going forward is fairly high, noted Kanagaretnam. “Based on the results of post-restriction audits, it appears that auditors have had difficulty maintaining audit quality after being forced to work remotely. Audit firms will therefore need to continue to develop effective ways to improve their audit process and overcome the limitations of the virtual work environment for the post COVID-19 future.”
Giri Kanagaretnam is available for interviews. A copy of the research article is available upon request.