The Impact of COVID-19 Restrictions on Audit Fees and Audit Delay : Evidence from Auditor Local Offices

This study examines the impact of COVID-19 public health restrictions on audit fees and audit delay at the auditor local office level. Using the state-by-state lockdown data to measure the degree of public health restrictions in auditor office locations. Using a sample of 2,252 U.S. firms during 2019 and 2020, this study empirically investigates the impact of the length of lockdown in auditors’ office locations on audit fees and audit delay. We also examine whether office-level characteristics (i.e., office size and office-level client importance) moderate the association between the length of statewide lockdown and both audit fees and audit delay. We find that a longer lockdown in auditors’ office locations is associated with higher audit fees and longer audit delay. The increase in audit fees and audit delay due to lockdown is higher for clients of larger local offices than those of smaller offices. In contrast, the positive impact of lockdown on audit fees and audit delay is less for more economically significant clients of an auditor office than that for less significant clients. Smaller clients are more likely to bear the higher cost of audits and experience longer audit delay during the pandemic. Our results indicate that COVID-19 restrictions have forced auditors to change the nature, scope, and timing of their tests, resulting in higher audit fees and longer delays in completing audit engagements. Our study finds evidence of the moderating effect of auditor office size and office-level client importance, providing some insights on how auditor local offices cope with their clients during the COVID-19 restrictions