The purpose of this paper is to examine the incremental information content of audit opinion while considering opinion determinants, such as auditor and auditee size, or a firm’s financial state.
A market valuation model is employed using US firm data collected over 30 years. The model relates stock returns to earnings and incorporates as additional variables auditors’ opinion types, opinion determinants and their interactions with audit expression.
The findings suggest that audit opinion has a significant market impact. The estimated positive or negative information content of the audit opinion types is associated with certain opinion determinants, such as auditor and auditee size and a firm’s financial state.
Additional firm-year observations regarding certain opinion qualifications could benefit future research.
This study offers useful insights by demonstrating the importance of auditing profession to the users of financial statements. It examines investors’ perception of each audit opinion type and the conditions under which this expression has the most serious effects. The results demonstrate the role of audit opinion and its cause-effect relationship with various economic events, allowing regulators not only to track the efficiency of various audit policy changes but also act preventively and amend the regulatory framework.
This paper empirically supports the significance of the auditing process and audit opinions by examining investor perceptions. It employs a value relevance model, in contrast to market-based research that adopts an event study methodology.
The authors would like to thank the Editor as well as the two anonymous referees for their help and valuable remarks that made the completion of this paper possible. They would also like to thank Professor Negakis CI, Associate Professor Kousenidis DV and the Lecturer Ladas AC for their great help and comments during the preparation of this paper.
Tahinakis, P. and Samarinas, M. (2016), "The incremental information content of audit opinion", Journal of Applied Accounting Research, Vol. 17 No. 2, pp. 139-169. https://doi.org/10.1108/JAAR-01-2013-0011Download as .RIS
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