Are auditor’s professional judgments influenced by air quality?

Abstract

This paper tests the influence of air quality on auditor’s professional judgments using air quality data disclosed by Ministry of Ecology and Environment of the People’s Republic of China in 2013–2015. We find that air pollution exposure of the client’s headquarter during fieldwork days has a negative impact on the auditor’s professional judgments. Further analysis shows that the influence of air quality on auditor’s professional judgments pertains to periods when air pollution problem attracts public attention, in regions with air pollution and in samples with air quality differences between the audit firm and the auditee. The results indicate that it is the negative emotion induced by the perception of air pollution rather than the pollution itself that influences auditor’s professional judgments. We also discover that air pollution affects auditor’s professional judgments through audit effort.