Auditors’ sensitivity to business risk under business risk auditing

Shen，Huihui1; Wu，Liansheng2; Zezhong Xiao，Jason3

2023

10.1016/j.jaccpubpol.2023.107113

Journal of Accounting and Public Policy   Impact Factor & Quartile

0278-4254

1873-2070

This study uses Chinese data and a difference-in-differences design to investigate the effect of the adoption of business risk auditing (BRA) on auditors’ sensitivity to business risk. We find that BRA adoption has an incremental positive effect on the relationship between business risk and audit hours in non-state-owned enterprises (NSOEs) but not in state-owned enterprises (SOEs). This result suggests that BRA increases auditors’ sensitivity to business risk in NSOEs. This effect is more pronounced when a client firm has a more complex business or the auditor is a non-Big10 domestic audit firm. The results of further tests show that an increase in audit hours due to BRA adoption results in an improvement in audit quality in NSOEs but not in SOEs. In addition, BRA adoption also has an incremental positive effect on the relationship between business risk and audit fees in NSOEs but not in SOEs.

Audit effort Audit fee Audit quality Business risk auditing

English

Corresponding

ECONOMICS BUSINESS

2-s2.0-85164366202

Scopus

1.Capital University of Economics and Business,China
2.Southern University of Science and Technology,China
3.University of Macau,China

Shen，Huihui,Wu，Liansheng,Zezhong Xiao，Jason. Auditors’ sensitivity to business risk under business risk auditing[J]. Journal of Accounting and Public Policy,2023.

Shen，Huihui,Wu，Liansheng,&Zezhong Xiao，Jason.(2023).Auditors’ sensitivity to business risk under business risk auditing.Journal of Accounting and Public Policy.

Shen，Huihui,et al."Auditors’ sensitivity to business risk under business risk auditing".Journal of Accounting and Public Policy (2023).