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Audit firm informatization and audit quality during COVID-19

Hongtao Shen (School of Management, Jinan University, Guangzhou, China)
Jing Pan (School of Management, Jinan University, Guangzhou, China)
Gary Monroe (University of New South Wales Business School, Sydney, Australia)
Jiaxing You (School of Management, Xiamen University, Xiamen, China)
Huiying Wu (School of Business, Western Sydney University, Sydney, Australia)

Journal of Accounting Literature

ISSN: 0737-4607

Article publication date: 25 September 2024

173

Abstract

Purpose

COVID-19 has forced audit firms to change the way they operate. One change has been to rely more on information technology (IT) and IT human capital to overcome COVID-19-related challenges. We refer to audit firms’ use of these two resources as audit firm informatization (AFI). It is important to understand whether AFI helps audit firms address challenges created by the pandemic. Thus, this study examines the impact of AFI on audit quality during the COVID-19 pandemic in China with a focus on IT human capital.

Design/methodology/approach

We use a mixed-methods approach. First, we perform multivariate regression analyses on archival data. Specifically, we investigate the relationship between IT human capital and audit quality and the two mechanisms (i.e. improved efficiency and reduced audit risk) underlying the relationship. We also investigate how this relationship is moderated by features of clients, audit firms and individual auditors. Then we use interviews to corroborate the results of our regression analyses.

Findings

Our analyses of archival data show that IT human capital positively affects audit quality through improved efficiency and reduced audit risk and that this positive impact is more pronounced for clients in non-manufacturing industries, those with a more opaque information environment, audit firms with greater industry coverage and individual auditors with less experience. Our interview data indicate that audit firms with more advanced AFI and a higher level of IT human capital in particular are less disrupted by the pandemic and are better able to use IT to address challenges associated with COVID-19. Furthermore, the results confirm that improved efficiency and reduced audit risk are the mechanisms through which AFI enhances audit quality. Finally, we identify issues associated with the use of IT.

Originality/value

This study is the first to investigate how IT human capital (and by extension AFI) influences audit quality in the context of the COVID-19 pandemic. Our findings should be of interest to practitioners and setters of auditing standards.

Keywords

Acknowledgements

Jiaxing You acknowledges the financial support from the Major Program of National Fund of Philosophy and Social Science of China (23&ZD072) and the General Program of National Natural Science Foundation of China (72272125). Hongtao Shen acknowledges the financial support from the Key Program of National Natural Science Foundation of China (72132002).

Citation

Shen, H., Pan, J., Monroe, G., You, J. and Wu, H. (2024), "Audit firm informatization and audit quality during COVID-19", Journal of Accounting Literature, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAL-06-2023-0094

Publisher

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Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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