Search results

This paper examines the organizational resilience of audit firms during the early stages of COVID-19. The unexpected restrictions placed on travel and on-site working created unanticipated barriers for auditors in Hong Kong. The authors expect that auditors with greater organizational resilience can respond to unexpected situations and restore expected performance levels relatively quickly.

The authors utilize a sample of 1,008 companies listed on Hong Kong Stock Exchange (HKEX) with a financial year-end of December 31. The authors identify five proxies contributing to organizational resilience: auditor size, industry specialization, diversity, geographic proximity to the client and auditing a new client. The authors use audit report timeliness as this study's main dependent variable.

This study's full-sample results suggest that larger auditors, industry specialists and auditors with closer relationships to clients issued more timely audit reports during the pandemic. The analysis of a subsample of companies that initially published unaudited financial statements reveals that industry expertise and longer auditor-client relationships significantly reduced the need for year-end audit adjustments. Finally, the authors find that larger auditors were more likely to offload clients, whereas industry specialists were more likely to retain clients.

The results of the paper suggests that audit firm characteristics associated cognitive abilities, behavioral characteristics and contextual conditions are associated with audit firm organizational resilience and, consequently, helps auditors respond unexpected changes in the audit environment.

The findings of the paper are informative for those involved in audit firm management or auditor hiring and retention decisions.

This study is the first to link organizational resilience to the performance of audit firms in a time of unexpected events. The authors connect three auditor and two auditor-client dimensions to the organizational resilience of the audit firms.

The chapter summarizes key literature, including emerging ideas, that is pertinent to the question of how organizations and their leadership deal with and are resilient through crises – highlighting what works in surviving unexpected crises. The chapter presents an illustration of organizational response; it concludes with an analysis of what is missing from the literature and recommends a path forward to expanding actionable knowledge in this area. Multiple, interdependent factors that foster resilience are identified including (1) being sensitive to possible threats – even seemingly small failures, (2) not relying on simple interpretations of events but rather seeking diversity to create a complete view of the environment, (3) leadership that embraces communication, transparency, and continuous learning, (4) valuing expertise and allowing expert staff to make decisions during a crisis, and (5) a cultural commitment to a resiliency mindset that accepts failures as opportunities to learn and improve. Emerging concepts that may foster resilience but require more research include managing paradox, emotional ambivalence and diversity. Additional areas for fruitful research include: the impact of short-term versus long-term, or successive, crises; external versus internal shocks and the framing of the source of shocks; how crisis affect the pace of innovation and change; the role of diversity in organizational responses to crises; and a set of methodological opportunities to leverage natural experiments or simulations in ways that allow for longitudinal data illuminating the full cycle of crises across organizations from anticipation, to response, to longer-term adaptation to the new normal.