Auditor Response to Significant Disruption: Evidence from COVID-19 Lockdowns

SUMMARY Prior literature documents that auditors respond to changes in inherent and control risk. This study investigates how well auditors adapted their audit plans when unexpected disruption affected a different component of the audit risk model—namely auditors’ plans to achieve an appropriate level of detection risk. We use COVID-19 lockdowns in China as the setting because China’s lockdowns were the first of their kind, strictly enforced, and well aligned with the timing of year-end audits. We provide background information on auditors’ response to the pandemic based on interviews with auditors who conducted audits during the lockdowns. We then use a difference-in-differences (DiD) design and find that auditors who were subject to lockdowns were able to adapt their audit procedures, resulting in audit quality improvements. Additionally, we document several factors that facilitated auditors’ successful response, including auditor knowledge, audit effort, and client resources. Data Availability: Data are available from public sources noted in the article. JEL Classifications: L84; M41; M42.