Which Auditor Should You Hire in the Year of the Snake?

By Prof. Jian ZHANG

From reading tea leaves and gazing in crystal balls to mapping the stars and drawing tarot cards, people across cultures and all walks of life have invested considerable amounts of time–and money–in their quest to glimpse what the future holds. Despite lacking any scientific foundation, many still rely on superstitions to help manage uncertainty—even, according to a recent paper[1], for people engaged in what is often perceived as a highly professional activity: auditing.

In the high-stakes world of finance, where algorithms and quantitative techniques are said to reign supreme, superstitions continue to wield a surprising influence. In the boardrooms and on trading floors, CEOs might choose auspicious numerical ticker codes for their IPOs, and traders may time their limit orders based on more than the latest data. In China, a country where divinatory practices have been woven into the cultural fabric for millennia, decisions are often swayed by the principles of Feng Shui and the guidance of the Chinese zodiac. In Chinese astrology, which attributes an animal and its characteristics to each lunar year within a twelve-year cycle, the zodiac takes on particular significance during what's known as a person's "benming nian", or zodiac year—when the year's sign matches that of their birth year. This period is traditionally viewed as unlucky, with individuals fearing challenges ranging from illnesses to financial setbacks. But surely, accountants, typically seen as pillars of objectivity, are immune to such beliefs?

Analysing a sample of listed firms in China's A-share market from 2007 to 2020, researchers examined the zodiac years of signing auditors as sourced from the Chinese Institute of Certified Public Accountants. The study found that firms with lead auditors in their zodiac years recorded less income-inflating discretionary accruals, made fewer material misstatements, and showed a reduced probability of financial restatements in subsequent years. Already known for their caution, auditors apparently take this to another level when in their zodiac years, meticulously scrutinising details and adopting a stricter, risk-averse approach. This heightened vigilance leads to less tolerance for clients' aggressive accounting tactics and opportunistic behaviours.

The result? Auditors in their zodiac years generally provide superior audit quality. This is especially true for partners, who face greater financial and reputational risks from audit failures, and older auditors, who are more influenced by traditional beliefs. Notably, this effect is concentrated in larger auditing firms, including international ones.

So, if you’re a CEO planning some window-dressing to enhance your company’s appeal or an investor scrutinizing the financials of a potential takeover target, make sure to check if the auditor is in her "benming nian". Whether you believe in Chinese astrology or not is beside the point—what matters is if the auditor does!

Reference:

[1]  Dou, H., Khoo, E. S., Tan, W., & Zhang, J. J. (2024). Superstition, Risk Aversion, and Audit Quality: Evidence from China. AUDITING: A Journal of Practice & Theory, 43(4), 51–85. https://doi.org/10.2308/AJPT-2022-140