On 17 April there will be an ODA seminar by Sam Damsgaard Enemark entitled

Psychological Distress and Audit Quality: Sensitive Register Based Evidence from Denmark

Abstract
We investigate whether auditors’ excessive workloads are associated with psychological distress and, in turn, impaired audit quality. Using a novel administrative dataset comprising 123,144 firm-year observations in Denmark from 2016 to 2020 together with the classified medical histories of the signing auditors and their audit team members, we find that auditors who experience excessive workloads are more likely to receive treatment for psychological distress, including redeeming prescriptions on medicine used to treat mental health issues, to experience psychologist consultations, and to undergo talking therapy with their general practitioner. In turn, we find that clients of signing auditors and audit team members who receive treatment for psychological distress are associated with larger discretionary accruals and a greater likelihood of meeting and beating the zero-earnings benchmark by a small margin. In additional tests, we find that auditors employed at Big 4 audit firms are less likely to develop psychological distress as a response to excessive workloads compared to auditors employed at non-Big 4 audit firms. However, once psychologically distressed, Big 4 auditors are associated with greater audit quality impairment compared to non-Big 4 auditors. Moreover, audit quality is marginally more impaired when auditors serve complex clients compared to non-complex clients. Lastly, we find that audit quality is impaired three years prior to the signing auditor receives treatment and remains impaired after their termination of treatment. Our findings suggest that excessive workloads are likely to be a structural burden in the auditing industry which impairs auditors work performance.

Everyone is welcome!