Research On The Impact Of Public Health Emergency On Auditors’ Behavioral Decisions

With the development of global modernization and economic integration,various public emergencies occur frequently,posing a huge threat to global economic development and human life and health.How to better survive and develop in an era of frequent crises has become a key topic of concern for scholars.Among all public emergencies,public health events have the characteristics of rapid spread and wide impact.In addition to having a significant impact on the macroeconomic level,public health emergencies can also bring shocks to the capital market through the industrial chain,supply chain,and capital chain.As the "gatekeeper" of the capital market,the financial statement auditing services constitute a very important part of the capital market information disclosure system.Only by providing high-quality audit services can we ensure the quality of financial statement information of listed companies,protect the legitimate rights and interests of stakeholders,and ensure the standardized and efficient development of the capital market.In 2020,the COVID-19 pandemic caused an unprecedented global public health crisis,which was a major public health emergency with the fastest spread speed and the widest infection range since the founding of New China,and also brought unprecedented challenges and impacts to the audit industry.In face of economic recession caused by public health emergencies,audit scope limited by the disruption of the normal order of social life,and increasingly stringent external regulatory environment,audit risks have also significantly increased.Therefore,the behavior decision-making of auditors in public health emergencies is a topic worth studying.The logic behind the impact of public health emergencies on auditors’ behavioral decisions is mainly reflected in three aspects:Firstly,public health emergencies have caused significant damage to economic development,greatly increasing the uncertainty of audit clients’ continuing operations,thereby increasing audit risks.During the COVID-19 pandemic,with the shrinking market demand and the changing consumption structure,most enterprises were faced with sudden decrease in income,sharp increase in cost,insufficient book funds,and increased debt risk(Zhu Wuxiang et al.,2020),which could lead to closure or bankruptcy at any time,and there was significant uncertainty in their ability to continue operations.As the customer’s business environment deteriorates,auditors face higher litigation risks and reputational loss risks,and audit risks increase.Secondly,public health emergencies disrupt the normal order of social production and life,resulting in limited audit scope.It affected the acquisition of audit evidence,thereby changing auditing behavior and decision-making,and affecting audit quality.During the COVID-19 epidemic,communication and exchange between auditors and audit clients were greatly restricted.Public health emergencies greatly increase the external risks of enterprises,increasing the possibility of significant misstatement of financial statements.The limited audit scope increased the risk of significant misstatement of financial statements that cannot be detected by auditors.In order to reduce the possible losses caused by audit risks,auditors have a stronger motivation to assess and respond to risks,which inevitably affects audit decisions and thus audit quality.Thirdly,public health emergencies pose a significant threat to life and health,which can generate negative emotions for auditors,thereby affecting their risk assessment and behavioral decision-making.Public health emergencies can cause strong negative emotions among the public.Studies in behavioral economics have shown that human judgments are influenced by personal characteristics such as psychology,emotions,and preferences,thereby affecting the final behavioral decision-making results.Audit work highly relies on the judgment of auditors,and emotional changes brought about by public emergencies inevitably affect auditors’ behavioral decisions,thereby affecting audit quality.This paper summarizes the relevant research on the economic consequences of public health emergencies and the relevant research on the influencing factors of auditors’ behavior decisions.Taking the COVID-19 as an exogenous shock event,this paper studies the impact of public health emergencies on auditors’ behavior decisions from three dimensions,including audit input,auditor resignation and audit quality.Firstly,this paper studies the first response measures taken by auditors under the impact of public health emergencies,namely,changing the decision-making of audit resource investment.Research has found that public health emergencies,whether in the location of audit clients or auditors,can lead auditors to adopt a more cautious attitude,implement more audit procedures,and increase audit input.This article analyzes three drivers of public health emergencies affecting audit investment.Firstly,based on the perspective of audit client operational risk,the driver analysis found that the higher the client operational risk,the more significant the effect of public health emergencies on improving audit investment;Secondly,based on the motivation analysis from the perspective of limited audit scope,we found that the greater the difficulty of remote audit,the higher the audit risk.In order to ensure audit quality,auditors need to invest more time and energy;Thirdly,based on the motivation analysis from the perspective of auditor emotions,we found that the greater the impact of public health emergencies on auditor emotions,the more audit investment.In further analysis,this paper finds that there are significant differences in the impact of public health emergencies on the audit input in different types of accounting firms.Secondly,when the audit risk exceeds the scope that the auditor can bear,and more audit investment cannot reduce the audit risk to an acceptable level,the auditor will consider resigning the audit client.We found that public health emergencies increase the likelihood of auditor resignations.This effect mainly exists in the sample of public health emergencies in the location of audit clients,indicating that the auditor’s resignation decision is mainly based on the operational risk of the audited clients.Regarding the adverse impact of public health emergencies on the stability of audit contracts,this chapter finds that the degree of informatization of clients and firms can reduce auditor resignations under public emergencies.In further analysis,we found that the direction of auditor change is mainly downward,confirming the independence of larger firms in dealing with uncertain risks.Finally,we examine the impact of public health emergencies on audit quality from the perspective of audit results output.Public health emergencies occurring in the location of audit clients and auditors have different impacts on audit quality.When health emergencies occur in the city where the audit client is located,the audit quality will significantly decrease.When the health emergency occurs in the city where the auditor is located,the anxiety and uncertainty can make the auditor pessimistic about the risk assessment,have a lower tolerance for the earnings manipulation,and improve the audit quality.Through further research,we found that the high level of customer informatization is a double-edged sword.When health emergencies in the audit client’s location have a negative impact on audit quality,the customer’s informatization can alleviate the negative impact.When a health emergency occurs in the auditor’s location,a higher level of informatization may instead become a means for audit clients to manipulate earnings,affecting audit quality.In addition,in the new audit methods brought about by health emergencies,the informatization level and informatization talent allocation of accounting firms have played an important role in promoting audit quality.The research contribution of this paper can be summarized into the following three aspects: First,this paper expands the relevant research on the economic consequences of public health emergencies on the microeconomic level.The existing literature on the economic consequences of health emergencies mainly discusses its impact on the macroeconomic level,while the literature on the economic consequences at the microeconomic level is less.From the perspective of auditors’ behavior and decision-making,we studie the impact of health emergencies on the micro level of the capital market,and analyzes the moderating effect of factors such as the degree of informatization of audit clients,the degree of informatization of accounting firms,and the informatization configuration of audit teams.This paper expands the relevant research on the economic consequences of public health emergencies on the micro level of the economy.Secondly,this paper enriches the study of auditor’s decision-making behavior in the abnormal environment.Because of the unpredictability of the crisis,the outbreak of the COVID-19 has provided us with a near natural experimental research environment to study the impact of public emergencies on auditor behavior.At the same time,the outbreak of the COVID-19 reminds people of public emergencies in recent years,and gradually realizes that global public emergencies have shown a trend of frequent occurrence.Auditors should focus on how to respond to public emergencies.Based on the abnormal environment of public emergency,this paper studies its possible impact on the audit of financial statements,and provides a theoretical basis for the future crisis management of accounting firms and the digital reform of the audit industry.Thirdly,this study provides new evidence for us to understand the impact of auditors’ emotions and psychological characteristics on audit behavior,and introduces the theory that emotions may have an impact on behavioral decisionmaking in psychology into the study of auditors’ decision-making.Most of the existing literature are based on the hypothesis that auditors are rational person,which assumes that the audit services provided by auditors are homogeneous.But in fact,this hypothesis has also been constantly questioned.Few literatures pay attention to the impact of auditors’ psychological characteristics on audit behavior.This paper discusses the impact of negative emotions on auditors’ behavior and decision-making under public emergencies,which provides direct empirical evidence and important reference for auditors’ emotions affecting audit judgments.