The impact of COVID-19 restrictions on audit fees and audit delay: evidence from auditor local offices

• Published in: Managerial auditing journal Vol. 38; no. 4; pp. 447 - 473
• Main Authors: Harjoto, Maretno Agus, Laksmana, Indrarini
• Format: Journal Article
• Language: English
• Published: Bradford Emerald Publishing Limited 16-03-2023; Emerald Group Publishing Limited
• Subjects: Accounting firms; Audit fees; Audit quality; Auditing standards; Auditors; Coronaviruses; COVID-19; Economic crisis; Economic impact; International finance; Pandemics; Public health; Shelter in place; COVID-19; Audit delay; Lockdown; Client importance; Audit fees; Auditor local office
• ISSN: 0268-6902; 1758-7735; 0268-6902
• DOI: 10.1108/MAJ-03-2022-3487

Purpose
This study aims to examine the impact of COVID-19 public health restrictions on audit fees and audit delay at the auditor local office level.
Design/methodology/approach
The authors take advantage of the availability of the state-by-state lockdown data to measure the degree of public health restrictions in auditor office locations. Using multivariate regression analysis, this study empirically investigates the impact of the length of lockdown in auditors’ office locations on audit fees and audit delay. The authors also examine whether office-level characteristics (i.e. office size and office-level client importance) moderate the association between the length of statewide lockdown and both audit fees and audit delay.
Findings
The authors find that a longer lockdown in auditors’ office locations is associated with higher audit fees and longer audit delay. The increase in audit fees and audit delay due to lockdown is higher for clients of larger local offices than those of smaller offices. In contrast, the positive impact of lockdown on audit fees and audit delay is less for more economically significant clients of an auditor office than that for less significant clients. Smaller clients are more likely to bear the higher cost of audits and experience longer audit delay during the pandemic.
Originality/value
The results suggest that COVID-19 restrictions have forced auditors to change the nature, scope and timing of their tests, resulting in higher audit fees and longer delays in completing audit engagements. Beyond the main effect of lockdowns on audit fees and audit delay, the study finds evidence of the moderating effect of auditor office size and office-level client importance, providing some insights on how auditor local offices cope with COVID-19 restrictions.