Do major public emergencies affect audit quality? —Evidence from China

Taking Chinese listed firms from 2019 to 2021 as research samples, we examine the impact of major public emergencies on audit quality using COVID-19 as exogenous shock. Distinguishing the location of audit clients and that of auditors, we find that if major public emergency occurs in the city of audit clients during the period of annual report audit, audit quality will be significantly reduced. If emergency occurs in auditor’s city, audit quality has improved instead of declining. Through the heterogeneity test, we find that the information level of audit clients has a double effect. When public emergencies in audit clients’ locality have a negative impact on audit quality, the information level of clients can alleviate the negative impact. However, when emergencies occur in auditor’s locality, the higher information level of the client may lower audit quality. However, whether public emergence occurs in the city of clients or auditors, auditing firms’ information technology level and more information technology personnel in auditors’ team are conducive to improve audit quality. The research has enriched the relevant research on audit quality in the context of public emergencies, and provided a theoretical basis for the urgency of digital transformation of accounting and auditing industry.