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21 – 30 of over 2000
Article
Publication date: 3 January 2022

Rana Bayo Flees and Sulaiman Mouselli

This paper aims to investigate the impact of qualified audit opinions on the returns of stocks listed at Amman Stock Exchange (ASE) after the introduction of the recent amendments…

Abstract

Purpose

This paper aims to investigate the impact of qualified audit opinions on the returns of stocks listed at Amman Stock Exchange (ASE) after the introduction of the recent amendments by the International Auditing and Assurance Standard Board (IAASB) on audits reporting and conclusions. It further investigates if results differ between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern.

Design/methodology/approach

Audit opinions’ announcements and stock returns data are collected from companies’ annual reports for the fiscal years 2016 to 2019 while stock returns are computed from stock closing prices published at ASE website. The authors apply the event study approach and use the market model to calculate normal returns. Cumulative abnormal returns (CARs) and average abnormal returns (AARs) are computed for all qualified audit opinions’ announcements.

Findings

The empirical evidence suggests that investors at ASE do not react to qualified audit opinions announcements. That is, the authors find an insignificant impact of qualified audit opinion announcements on stock returns using both CAR and AAR estimates. The results are robust to first time and sequenced qualifications, and for qualifications with going concern. Results are also robust to the use of risk adjusted market model.

Research limitations/implications

The insignificant impact of qualified audit opinions on stock returns have two potential conflicting research implications. First, the new amendments introduced to auditors’ report made them more informative and reduce the negative signals contained in the qualified opinions. That is, investors are now aware of the real causes of qualifications and not overreacting to the qualified opinion. Second, the documented insignificant impact confirms that ASE is not a semi-strong form efficient.

Practical implications

The apparent excessive use of qualifications should ring the bell on whether auditors misuse their power or companies are really in trouble. Hence, the Jordanian regulatory bodies need to warn auditors against the excessive use of qualifications on the one hand, and to raise the awareness of investors on the implications of auditors’ opinions on the other hand.

Originality/value

This study is innovative in twofold. First, it explores the impact of qualified audit opinions on stock returns after the introduction of new amendments by IAASB at ASE. In addition, it uses event study approach and distinguishes between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern. The results are consistent with efficient market theory and behavioral finance explanations.

Details

Journal of Financial Reporting and Accounting, vol. 21 no. 3
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 25 April 2023

Ling Tuo, Shipeng Han, Zabihollah Rezaee and Ji Yu

This study aims to address the unanswered question of whether corporate sustainability has an impact on auditors’ overall judgment and to provide incremental evidence that…

Abstract

Purpose

This study aims to address the unanswered question of whether corporate sustainability has an impact on auditors’ overall judgment and to provide incremental evidence that corporate sustainability reporting has significant effect on financial auditors’ judgment.

Design/methodology/approach

Following prior research, the authors, respectively, apply auditors’ decisions on going-concern opinions and three discretionary accrual measures as proxies for auditor conservatism over financial risk and financial reporting risk. The authors collect corporate sustainability reporting and sustainability assurance data of U.S. firms from the global reporting initiative (GRI) database to construct and measure firms’ sustainability reporting activities.

Findings

The authors find that nonreporting firms are more likely to receive going-concern opinions than the reporting firms. In addition, reporting firms have a larger scale of discretionary accruals than their nonreporting counterparts. The authors also obtain consistent findings that sustainability assurance or accounting assurance providers strengthen the effect of sustainability reporting on auditors’ judgment.

Research limitations/implications

First, using discretionary accruals as measures of auditor conservatism is controversial, as accruals are the joint product by auditors and clients. Second, binary variables as a measure of sustainability reporting activities limit the inference. Lastly, the findings based on limited samples may weaken the external validity.

Practical implications

The findings imply that firms engaging in sustainability activities are lower in financial or financial reporting risk. Firms can influence audit practitioners’ overall judgment through sustainability reports. Sustainability commitments and reporting have become a part of firms’ risk management.

Social implications

The findings imply that sustainability reporting could become an integrated part of regulated corporate disclosure. Sustainability assurance reduces social costs by lending credibility to sustainability reports.

Originality/value

This paper provides incremental evidence that sustainability reports provide useful information and signals that influence auditors’ professional judgment. The findings also suggest that sustainability assurance strengthens auditors’ confidence in using sustainability information, thus amplifying the effect of sustainability reporting on auditors’ judgment.

Details

International Journal of Accounting & Information Management, vol. 31 no. 3
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 1 April 1988

Hooi Den Huan

The article looks at audit procedures, the auditor's duties and other considerations in respect of going concerns.

Abstract

The article looks at audit procedures, the auditor's duties and other considerations in respect of going concerns.

Details

Management Research News, vol. 11 no. 4/5
Type: Research Article
ISSN: 0140-9174

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Article
Publication date: 21 June 2018

Mahdi Salehi, Hossein Tarighi and Haydar Sahebkar

The purpose of this study is to examine high-quality auditors’ conservatism in Iran market based on the classification of Tehran Stock Exchange (TSE) in terms of their reaction to…

Abstract

Purpose

The purpose of this study is to examine high-quality auditors’ conservatism in Iran market based on the classification of Tehran Stock Exchange (TSE) in terms of their reaction to client’s earnings management behavior and their limitations to issue the going concern opinions (GCOs) over an eight-year period from 2009 to 2016.

Design/methodology/approach

The study population consists of 1,376 observations and 172 companies listed on the TSE during the years 2009-2016. Following the prior studies, the authors used the modified Jones model to measure discretionary accruals as a proxy for earnings management.

Findings

The results witnessed a negative relationship between the size of the audit firm and discretionary accruals; besides, the relationship between abnormal accruals and GCO on companies audited by high-quality audit firms is higher than other companies. In other words, firms with GCO, which were audited by the Iranian large auditors, report negative abnormal accruals less than those audited by non-large auditors. In short, in spite of the special features of Iran market because of economic sanctions, this paper extends prior literature clarifying that auditors’ conservatism induces accrual reversals when auditors issue GCOs. One interpretation of this result is that the existence of such association is because of not only auditor conservatism but also financially distressed firms.

Practical implications

The outcomes of this paper will help to fill the knowledge gap related to this issue between developing and developed countries because this investigation exposed more than ever the vital role of the auditor as an observer on the financial statements. Without any exaggeration, this research will make investors and stakeholders aware of this fact that auditor conservatism will be effective in reducing the manipulation of financial reporting and agency problems in emerging markets, particularly those markets facing with economic sanctions like Iran.

Originality/value

Because of Iran’s dire economic situation during the period under consideration, this is one of the most comprehensive research among the countries of the Middle East that surveys the impact of auditor conservatism on accruals and GCO in an emerging market, namely, Iran.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 28 April 2022

Camelia-Daniela Hategan, Ruxandra-Ioana Pitorac and Andreea Claudia Crucean

This research seeks to assess the impact of the COVID-19 pandemic on the quality of financial reporting and the auditor's responsibility. This paper aims to investigate how the…

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Abstract

Purpose

This research seeks to assess the impact of the COVID-19 pandemic on the quality of financial reporting and the auditor's responsibility. This paper aims to investigate how the auditors identified the impact of COVID-19 on the companies' annual financial statements and considered this impact as a key audit matters (KAM) in the reports issued and the factors that influenced their reporting.

Design/methodology/approach

The empirical research consists of a qualitative analysis of KAMs and a quantitative one based on a panel data econometric model using a random effects maximum likelihood regression. The sample includes companies listed on the primary market on European stock exchanges in 2019–2020.

Findings

The results suggest a direct positive correlation between numbers of KAMs and the auditor's size, frequency of the event and going concern uncertainty. Two of the variables were not validated: auditor rotation and audit fees.

Research limitations/implications

The limitation of research can be the sample structure, and the model we proposed does not take into account all possible influencing factors.

Practical implications

This study will help researchers, policymakers and business owners have a deeper understanding of auditors' responsibility in their work. As practical implications of the COVID-19 impact following the implementation of telework, audit firms have begun to invest in digital programs to assist them in their teamwork and communication with clients. One impact on regulators has been to relax reporting requirements by extending deadlines.

Originality/value

This research contributes to the academic literature by providing a synthesis and econometric model of the effects identified by auditors, following the COVID-19 pandemic, expressed by KAMs in their reports.

Details

Managerial Auditing Journal, vol. 37 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 8 February 2024

Md Khokan Bepari, Shamsun Nahar and Abu Taher Mollik

This paper aims to examine the perspectives of auditors, regulators and financial report preparers on the effects of key audit matters (KAMs) reporting on audit effort, fees…

Abstract

Purpose

This paper aims to examine the perspectives of auditors, regulators and financial report preparers on the effects of key audit matters (KAMs) reporting on audit effort, fees, quality and report transparency.

Design/methodology/approach

The authors conducted 21 semi-structured interviews with stakeholders (13 Audit Partners, 5 Chief Financial Officers and 3 regulators) and thematically analysed the interviews. They use the frame of “Paradox of Transparency” to explain the findings.

Findings

Auditors perceive that the overall quality control of their audits has improved both in the planning and execution stages, and such improvement can mostly be attributed to the coercive pressures from professional bodies and regulators. Nevertheless, audit fee remains unchanged. Auditors disclose industry generic items and descriptions of KAMs, sometimes masking the real problem areas of the clients. Even after improving the performative audit quality, transparency of audit reporting has not improved. Issues that warrant going concern qualifications or audit report modifications are now reported as KAMs. Hence, KAMs reporting might make the audit report less transparent.

Practical implications

Localised audit environments and institutions affect the transparency of KAMs reporting. Without attention to corporate governance and auditors’ independence issues, paradoxically, performative improvement in audit quality (due to the KAMs reporting requirement) does not enhance the transparency of audit reports.

Originality/value

To the best of the authors’ knowledge, this study is the first to provide field-level evidence in Bangladesh and other developing countries about the perceptions of auditors, financial report preparers and regulators on the effects of KAMs reporting on audit efforts, fees, quality and report transparency.

Details

Qualitative Research in Accounting & Management, vol. 21 no. 2
Type: Research Article
ISSN: 1176-6093

Keywords

Article
Publication date: 9 June 2020

Marco Maffei, Clelia Fiondella, Claudia Zagaria and Annamaria Zampella

The purpose of this paper is to develop a model for assessing the audit evidence of the going-concern (GC) assumptions underlying the preparation of financial statements.

Abstract

Purpose

The purpose of this paper is to develop a model for assessing the audit evidence of the going-concern (GC) assumptions underlying the preparation of financial statements.

Design/methodology/approach

This research analyses 678 audit opinions of Italian listed firms from 2007 to 2016 and uses a multiple linear discriminant analysis to create a GC score, which includes variables suggested by the international standards on auditing (ISA) 570 and by literature on GC.

Findings

The model provides three cut-off scores which can orient auditors towards issuing the most appropriate GC audit opinions (unmodified opinion, unmodified opinion, which includes emphases of matter, qualified opinion or disclaimer of opinion).

Research limitations/implications

The development of the model is mainly based on public data and does not assess confidential information that is not disclosed in audit opinions.

Practical implications

This model can enable auditors to identify the most appropriate GC opinion and align auditor’s opinions in similar circumstances, thereby reducing their reliance on discretion and increasing the reliability of their judgement with a higher degree of accuracy. Moreover, this research lists additional events or conditions that may individually or collectively cast significant doubt on GC assumptions.

Originality/value

This study goes beyond the traditional decision-making process, apparently binary in nature, between “continuity” and “failure” or between “unmodified” and “modified” opinions. It is conceived to detect the different degrees of uncertainty that affect GC evaluations to orient auditors’ professional judgements.

Details

Meditari Accountancy Research, vol. 28 no. 6
Type: Research Article
ISSN: 2049-372X

Keywords

Article
Publication date: 1 June 2015

Torbjörn Tagesson and Peter Öhman

This paper aims to chart Swedish auditors’ likelihood of issuing going concern warnings (GCWs), and to investigate the relationship between formal auditor competence, audit fees…

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Abstract

Purpose

This paper aims to chart Swedish auditors’ likelihood of issuing going concern warnings (GCWs), and to investigate the relationship between formal auditor competence, audit fees and audit firm, respectively, and the likelihood of issuing GCWs.

Design/methodology/approach

The empirical data are based on annual reports and audit reports for 2,547 limited companies that went bankrupt in 2010 in the wake of the financial crisis and had filed a financial statement in the year before the bankruptcy.

Findings

The findings indicate that Swedish auditors seldom issue GCWs. Moreover, there is a positive relationship between audit fee level and the likelihood of issuing GCWs, and Big 4 auditors being more likely to issue such warnings than other auditors. However, the analyses identify differences between audit firms (within the group of Big 4 firms and within the group of other audit firms) in terms of their predictions of client bankruptcies. This suggests a need for further investigation of firm-specific differences. Contrary to what was predicted, authorized auditors are not more likely to issue GCWs than approved auditors.

Research limitations/implications

This paper did not investigate the impact of audit experience and tenure or the possibility that auditors may signal survival problems by resigning.

Practical implications

Levying appropriate audit fees creates opportunities for thorough audits, but auditors’ formal competence based on training and qualification is not a factor that enforces audit quality. Based on the findings, the authors also suggest some clarifications of existing standards to reduce ambiguity regarding the reporting of survival problems.

Originality/value

The Swedish setting is a context in which most companies are small, creditor interest in accounting and auditing is strong and auditors must issue a modified audit opinion if half of the shareholders’ equity is spent. This setting offers a unique research opportunity because the formal competence differs between Sweden’s two categories of certified auditors, and it allows exploration beyond the dichotomy of Big 4 versus other audit firms.

Details

Journal of Accounting & Organizational Change, vol. 11 no. 2
Type: Research Article
ISSN: 1832-5912

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Article
Publication date: 20 March 2009

Jonathan Stanley, F. Todd De Zoort and Gary Taylor

The purpose of this paper is to examine whether insider trading surrounding a first‐time going concern audit opinion is associated with a firm's future bankruptcy status.

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Abstract

Purpose

The purpose of this paper is to examine whether insider trading surrounding a first‐time going concern audit opinion is associated with a firm's future bankruptcy status.

Design/methodology/approach

Hypotheses are developed predicting that insiders of firms receiving going concern opinions (GCOs) trade in a manner consistent with private assessments of the firms' bankruptcy risk. Hypothesis testing involves univariate and logistic regression analysis of 363 firms receiving GCOs between 1996 and 2001.

Findings

As predicted, results indicate that changes in top executives' net selling (i.e. sales less purchases) immediately before and after the GCO are positively associated with the likelihood of bankruptcy over the following two years. Supplemental analysis reveals this finding is a function of insiders within the bankrupt sample reporting fewer purchase transactions surrounding the GCO event.

Practical implications

The results of the study have the potential to influence external stakeholders' assessments of GCOs and insider trading disclosures.

Originality/value

This study extends prior research examining the link between GCOs and clients' subsequent bankruptcy status by highlighting the potential for insider trading activity to serve as an, ex ante, identifier of Type I audit reporting errors. This study contributes to the insider trading literature by identifying the GCO as a specific type of price‐relevant information that potentially underlies insider trades. Consideration of the study's findings should include the possibility of model misspecification and measurement error in the variables of interest. Furthermore, the study's inability to isolate the specific factor(s) underlying the documented changes in insider trading is highlighted.

Details

Managerial Auditing Journal, vol. 24 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 7 June 2022

Kimberly Gleason, Brian Nagle, Yezen H. Kannan and Stephen Rau

This study aims to examine whether two periods of extreme market conditions – the governance crisis and Sarbanes-Oxley Act regulatory shock of 2002 and the 2007–2008 global…

Abstract

Purpose

This study aims to examine whether two periods of extreme market conditions – the governance crisis and Sarbanes-Oxley Act regulatory shock of 2002 and the 2007–2008 global financial crisis – incrementally impacted the self-fulfilling prophecy effect, by examining the propensity of US firms receiving going concern modification (GCM) opinions to go bankrupt relative to their non-GCM distress risk-matched counterparts during these two crisis periods.

Design/methodology/approach

To assess the potential influence of the governance/regulatory shock of 2002 and the global financial crisis moderate or mitigate the self-fulfilling prophecy effect, the authors use multivariate logit analysis, regressing t + 1 bankruptcy status on time t GCM and other bankruptcy determinants, interacting crisis period dummies with the GCM variable.

Findings

GCM firms were more likely to declare bankruptcy than their distressed non-GCM counterparts, confirming prior research documenting the existence of a self-fulfilling prophecy effect. The authors also find that the self-fulfilling prophecy effect was exacerbated by the governance crisis/Sarbanes-Oxley Act regulatory shock, but not the global financial crisis, a financial/banking sector shock.

Originality/value

This study contributes to the financial crisis and auditing literatures by examining whether exogenous shocks exacerbate the self-fulfilling prophecy effect. The present analysis and findings have implications for future academic research related to systemic shocks and for auditors in documenting the inducement effect arising from the issuance of GCMs during crisis periods.

Details

Meditari Accountancy Research, vol. 31 no. 5
Type: Research Article
ISSN: 2049-372X

Keywords

21 – 30 of over 2000