Seasonal affective disorder and audit quality

Abstract

This paper investigates whether seasonal affective disorder (SAD) influences audit quality. On the one hand, a SAD-induced negative mood can render auditors risk-averse in auditing. On the other hand, SAD can lower their cognitive ability and efficiency at work. Our results show that absolute discretionary accruals and the likelihood of restatements are lower when the level of SAD is higher during the audit period, thus suggesting that SAD lowers auditors' willingness to accept aggressive reporting. Other tests show that the relationship between SAD and audit quality is not significantly different between the fall and winter or between industry expert and non-industry expert auditors. We also find that the association between SAD and audit quality is more pronounced for auditors located in northern states than southern states. Lastly, our results hold after controlling for management reporting choices, auditor busy season, auditor locality and other robustness tests. Overall, this paper contributes to the auditing literature by highlighting the effect of environmental factors on auditors' professional judgement from a psychological perspective.