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COVID-19-Related Audit Report Disclosures: Determinants and Consequences

Author

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  • Joseph A. Micale

    (Martin Tuchman School of Management, New Jersey Institute of Technology, Newark, NJ 07103, USA)

  • Joon Ho Kong

    (School of Business, Stevens Institute of Technology, Hoboken, NJ 07030, USA)

Abstract

In this study, we identified firms receiving COVID-19-related audit report disclosures through critical audit matter (CAM) mentions of COVID-19 in their audit reports. Through OLS regressions, we then investigated the fundamental accounting and auditing determinants that predict the likelihood of firms to receive these COVID-19-related disclosures, and found that firms with intangibles and goodwill were more likely to have these mentioned in their audit reports. Next, we examined the content of these disclosures and found that auditors’ COVID-19 disclosures focused on significant accounting estimates (e.g., fair value accounting and asset impairment considerations). These results are consistent with the idea that COVID-19-related uncertainty represented a triggering event to firms, who then reassessed the carrying value of these long-term assets. After exploring the spillover effects to outsiders, we found that investors obtained a 7.3 basis point for abnormal returns following COVID-19 report disclosures and that auditors were able to charge these firms USD 452,000 higher audit fees relative to benchmark firms. The results are also consistent in entropy-balanced estimations and two-stage analyses that address endogeneity.

Suggested Citation

  • Joseph A. Micale & Joon Ho Kong, 2025. "COVID-19-Related Audit Report Disclosures: Determinants and Consequences," JRFM, MDPI, vol. 18(1), pages 1-35, January.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:1:p:21-:d:1562095
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    References listed on IDEAS

    as
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    4. Nathan R. Berglund, 2020. "Do Client Bankruptcies Preceded by Clean Audit Opinions Damage Auditor Reputation?," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1914-1951, September.
    Full references (including those not matched with items on IDEAS)

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