Air Pollution and Audit Judgment

2018-03-14

        TopicAir Pollution and Audit Judgment

   Speaker:Feng Chen, University of Toronto

   Time:Tuesday, March 20th, 9:30-11:00 am

   Site:EMS B226

  Abstract:

  This study examines whether and how air pollution affects auditors’ proclivity for modified audit opinion issuance. We argue that air pollution affects auditors’ audit judgment through two separate channels, i.e., the productivity reduction channel and the cognitive bias channel. Our empirical tests confirm that high levels of air pollution make auditors less likely to issue modified audit opinions. Consistent with the adverse effect on audit quality, we further show that air pollution is positively associated with client companies’ discretionary accruals and subsequent restatements. Applying a discontinuity design that focuses on observations with air quality index falling in the narrow range around 100, we again confirm that local air pollution leads to lower audit quality.

 

  Feng Chen is an Associate Professor of Accounting in the Department of Management at the University of Toronto Mississauga, with a cross-appointment to the Accounting department at Rotman School of Management. He obtained his Ph.D. in Accounting from Columbia Business School in 2008. His research interests involve corporate disclosure and financial reporting, auditing, corporate governance, and international accounting. His research has been published in leading academic journals including The Accounting Review, Journal of Accounting Research, Contemporary Accounting Research, and Review of Accounting Studies. As a Chartered Professional Accountant (CPA, CGA), he has extensive teaching experience from Columbia, Rutgers, University of Missouri, and University of Toronto.