Current Issue

CLIENT IMPORTANCE AND AUDIT QUALITY - A COMPARISON BEFORE AND AFTER THE COVID-19 PANDEMIC

Wen-Hsiang Lin

Department of Accounting, I-SHOU University

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Chih-Chi Yu

Department of Information Management, I-SHOU University

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Hsin-Wei Fu

Department of Tourism Intelligence Service and Technology, I-SHOU University

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Yun-Shao Jao*

Taiwan Economics Journal Co., Ltd.

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*(Corresponding Author)

Abstract

During the COVID-19 pandemic, auditors were unable to conduct on-site audits and had to rely on alternative audit procedures for financial statement audits. This situation provided an opportunity to observe whether auditors' economic dependence on clients would affect auditor independence. Therefore, this study examines whether the higher client importance leads to higher audit quality using data from listed and over-the-counter companies in Taiwan from 2017 to 2020. It also compares the impact of the pandemic on audit work and investigates whether auditors are more likely to allow earnings management for clients with higher economic dependence.

Empirical results reveal that before the pandemic, the quality of audit certifications for financial statements by auditors before the pandemic did not significantly change based on the importance of the client. However, after the outbreak of the pandemic, audit firms adopted higher audit quality for the important clients to maintain firm reputation and provide high-quality audit services to retain quality clients. 

Keywords: Client Importance, COVID-19 Event, Audit Quality