Financial reporting consequences of natural disasters : Evidence from the impact of resource constraints at audit offices on non-affected clients

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

3 Scopus Citations
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Detail(s)

Original languageEnglish
Article number107012
Journal / PublicationJournal of Accounting and Public Policy
Volume41
Issue number6
Online published19 Aug 2022
Publication statusPublished - Nov 2022

Abstract

Disaster-affected clients demand significant additional effort from their audit office, and hence strain the audit office's resources available to other non-disaster-affected clients. We consider audit offices with disaster-affected clients to be strained offices and find that, compared with clients audited by non-strained audit offices, non-disaster-affected clients audited by strained audit offices are more likely to have their financial statements restated. This result suggests the financial reporting quality of companies not directly exposed to disasters could also be negatively affected by the disasters, due to their auditors’ strained-resource issue. We further find such a negative effect is more pronounced when the degree of resource constraints is greater and when the audit office lacks client experience or industry expertise. We offer novel evidence of financial reporting consequences of natural disasters, focusing on the externality of disasters on companies not directly affected by disasters. The findings have important implications for regulators in making disaster-related policies, for auditors in managing their client portfolios, and for companies in making auditor choice decisions.

Research Area(s)

  • Audit quality, Natural disaster, Resource allocation, Resource constraints

Bibliographic Note

Research Unit(s) information for this publication is provided by the author(s) concerned.

Citation Format(s)

Financial reporting consequences of natural disasters: Evidence from the impact of resource constraints at audit offices on non-affected clients. / Jiang, Like; Lau, Sze Man; Su, Lixin (Nancy) et al.
In: Journal of Accounting and Public Policy, Vol. 41, No. 6, 107012, 11.2022.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review