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

Maretno Agus Harjoto (Pepperdine Graziadio Business School, Pepperdine University, Malibu, California, USA)
Indrarini Laksmana (Ambassador Crawford College of Business and Entrepreneurship, Kent State University, Kent, Ohio, USA)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 13 February 2023

Issue publication date: 16 March 2023

938

Abstract

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.

Keywords

Acknowledgements

The authors thank the Editor-in-Chief, Professor Jie Zhou, the Associate Editor, Professor Yew Kee Ho and three anonymous reviewers for their constructive comments and recommendations. Harjoto acknowledges the Denney Academic Chair 2019–2021 research endowment for the financial support and release time for this research project. Laksmana gratefully acknowledges the financial support from the KPMG LLP Kent State University Endowment for this research project.

Citation

Harjoto, M.A. and Laksmana, I. (2023), "The impact of COVID-19 restrictions on audit fees and audit delay: evidence from auditor local offices", Managerial Auditing Journal, Vol. 38 No. 4, pp. 447-473. https://doi.org/10.1108/MAJ-03-2022-3487

Publisher

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Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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