Eller Professor of Accounting Co-Authors Research Focused on Air Pollution in the U.S. and Misstatements in Financial Reporting
Paul Michas, Deloitte Professor of Accounting at The Eller College of Management, Dhaliwal-Reidy School of Accountancy, has co-authored a research study titled, Air Pollution in the United States and Misstatements in Financial Reporting with colleagues Jade Huayu Chen, of Loyola Marymount University, Wenzi
Zhuang, of Dongbei University of Finance and Economics, and Dan Russomanno.
Three key take aways of their research include the following findings:
- Air pollution is associated with lower-quality financial reporting.
- Even the relatively lower levels of pollution in the United States, compared to countries such as India and China, show these effects.
- Air pollution can have negative effects on the work quality of both financial statement prepares as well as auditors.
In summary, the researchers argue that “air pollution can jointly impede the quality of work performed by a client’s financial reporting personnel and its auditor. We exploit PM2.5 pollution data from the Environmental Protection Agency and find that higher levels of air pollution throughout the United States are associated with more financial statement restatements.”
Their main finding is more pronounced when both a client’s reporting personnel and its auditor are likely to be present on site, as well as in more complex engagements where the physical and cognitive demands placed on a client’s reporting personnel and its auditor are higher.
The researchers interpret this evidence as air pollution impeding the quality of work performed by a client’s reporting personnel, its auditor or both.