The effects of COVID-19 pandemic and auditor-client geographic proximity on auditors' going concern opinions

This study investigates how the COVID-19 pandemic, as measured by its morbidity and mortality, impacts the audit of companies, specifically how auditors make going-concern opinion (GCO) decisions. The pandemic created the conditions of a natural experiment, making it possible to disentangle the economic and psychological effects of COVID-19 on the auditors’ GCO decisions. Additionally, the lockdowns amplified the difference in the information sets of local and non-local auditors, thus making it possible to evaluate the information advantage due to geographic proximity. This study further tests the effects of geographic proximity on the accuracy of auditors’ GCOs during the pandemic by comparing them with clients’ subsequent bankruptcy filings. The results of this study show that both COVID-19 morbidity and mortality rates increase the likelihood of auditors’ GCOs, which can be explained from economic and psychological perspectives. The geographic proximity between audit offices and client headquarters mitigates the influence of COVID-19 morbidity information; however, it does not mitigate the psychological effects of COVID-19 mortality information. The results also indicate that local auditors can make more accurate GCO decisions due to their information advantage.