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This study aims to investigate whether auditors compromise their independence for economically important clients in family business settings.

The authors empirically examine the research question based on China for the years 2011 to 2020. The dependent variable is the auditors’ propensity to issue modified audit opinions, which is a proxy for auditor independence. The authors use relative client audit fees as a proxy for client importance. To address endogeneity issues in the selection of family firms, the authors use the two-stage least squares regression model and, subsequently, the propensity score matching and Hausman firm fixed effect modeling.

This study reveals that the propensity to issue modified audit opinions is positively correlated with client importance. Big-N auditors are more likely to issue modified audit opinions for their economically important family firm clients, whereas such evidence is not found for non-Big-N auditors. Results are consistent and robust to endogeneity test and sensitivity analysis.

This study enriches the literature on auditor independence and the effect of family firms’ ownership structure factors on audit reporting behavior for their economically important clients. Findings may prove useful for managers and practitioners interested in family business.

Non-profit organizations constitute an important share of the U.S. economy, and recent audit failures and GAO findings highlight the importance of auditor reporting decisions in this sector. In this study, we examine going-concern modified audit opinions for non-profit organizations. Using audit opinion data for 3,567 non-profits exhibiting some signs of financial stress, we find that non-profits are more likely to receive a goingconcern modified opinion if they are smaller, are in worse financial condition, expend less on program-related activities, and have more internal control related audit findings. Our analysis of the subsequent resolution of the going-concern uncertainties suggest that only 27 percent of the non-profits receiving an initial going-concern modified audit opinion filed for dissolution in the subsequent four fiscal years. Our findings fill a gap in an important area that has received little research attention, and provide a useful benchmark for non-profits and their auditors.

The purpose of this paper is to provide a meta‐analysis of the effect of: auditor and audit‐related variables; and firm‐specific variables on auditors' propensity to issue modified audit opinions. Auditor and audit‐related variables include Big N affiliation, audit firm industry specialization, audit firm and audit partner tenure, provision of non audit services and audit report lag. Some of the important firm‐specific variables include firm size, leverage, and profitability.

The Stouffer combined test is employed as the meta‐analysis technique for this paper. The test produces a z‐statistic that can be used to test the direction and significance of the effect of the hypothesized variables on the propensity of auditors to issue modified audit opinions. A total of 73 published studies are aggregated from 1982 to 2011.

Meta‐analysis result reveals that the effect of audit and auditor‐related variables on audit opinion decisions is far from conclusive. Big N affiliation and audit report lag variables are found to be positively related while the association between non‐audit fees and modified audit opinion decisions is negative. However, the significant effect of non‐audit fee variable is found only in non US studies. Evidence on the effect of firm‐specific variables on auditors' propensity to issue modified audit opinions is broadly consistent with hypotheses formulated in the published studies.

Meta‐analysis statistically aggregates results across individual studies and corrects for statistical artefacts like sampling and measurement error and, thereby, provides much greater precision with respect to the findings, compared with narrative reviews. The findings should be relevant for the current project on audit reporting initiated by the International Auditing and Assurance Standards Board (IAASB).

Audit opinion formulation is a complex procedure that culminates in the issuance of appropriate audit opinions. This paper adds value to the strand of audit opinion formulation research by documenting that some of the variables are more significant in explaining auditors' modified audit opinion decisions compared to other variables.

The purpose of this study is to investigate the effect of company characteristics such as the level of financial distress, client size and type of auditor on the propensity to issue modified audit opinions and to assess comparative differences in audit opinions during two significant economic crises in Turkey.

Logistic regression model is used to test the incremental contribution of each company characteristic on issuing the type of audit opinion for crisis periods. Additionally, to understand the reasons for differences in audit opinions between two types of crisis periods, the authors adopt Francis and Krishnan’s (2002) approach in which an auditor’s propensity to issue modified opinion may be jointly based on changes in client characteristics and auditor reporting strategies in that period.

The results indicate that there is a positive relationship between financial distress and the likelihood of receiving modified opinions in both crisis periods. Additionally, client size affects audit opinions negatively in both periods significantly. Auditors show higher propensity to issue a modified opinion during the domestic than the global financial crisis period, which could be explained by the changes in client characteristics more than their reporting strategy.

This study provides supportive evidence that the company characteristics including the financial distress can be very useful predictors for the auditors’ decisions while issuing their opinions.

The findings of different auditor behaviors during crises periods and possible reasons are the main contributions of this study for international and domestic regulators, investors, audit firms, academics and standard setters in emerging economies.

The purpose of this paper is to examine the association between audit opinion and earnings persistence of listed companies in Thailand from 2004 to 2008.

We use archival data and hand collected data in regression analysis. Content analysis was used to perform decomposition analysis of audit modifications.

Firms receiving modified opinions have lower earnings persistence than firms receiving unqualified opinions, and the degree of earnings persistence varies among types of modifications. We find that firms with a qualified opinion or a disclaimer have lower earnings persistence than firms receiving an unqualified opinion with an emphasis of matter (UEM). However, we find no difference in earnings persistence between firms receiving a qualification and a disclaimer. Content analysis reveals that there is information in certain types of modified opinions with respect to earnings quality. Firms receiving a scope limitation qualification and a going concern disclaimer have lower earnings persistence than firms receiving an UEM due to going concern issues.

Audit modifications reflect different degrees of problematic issues in clients’ firms, resulting in different impacts on earnings persistence. Thus, policymakers and regulators should emphasize the importance of using auditors’ reports. Strengthened enforcement by regulators makes individual auditors more aware of reputation risk and more likely to express appropriate audit opinions.

We examine a broader set of modified audit opinions than those used in prior research. Our study offers the opportunity to examine the association between earnings persistence and different types of modified opinions, especially a disclaimer, which has been rarely found in prior research.

The purpose of this paper is to examine the costs to audit firms in terms of lost revenues of losing small clients due to auditor switching or client bankruptcy after issuing first-time going concern modified opinions.

A population of small Swedish companies receiving first-time going concern modified opinions in 2009 was examined to determine the effects two years later compared with a matched sample of financially stressed companies that had not received going concern modified opinions.

The results indicate that both auditor switching and client bankruptcy are positively related to receipt of going concern modified opinions. Furthermore, the authors find empirical evidence that auditors issuing first-time going concern modified opinions lose proportionately more fees through auditor switching and client bankruptcy than do auditors not issuing such opinions to financially stressed clients. Finally, the authors found that the going concern modified opinions issued by Big 4 firms are no more harmful to clients than are those issued by other audit firms.

The authors recognize a limitation of this study regarding the choice of control companies. Although the authors attempted to find similarly sized and similarly financially stressed companies from the same industries as those companies in the test group, the authors may have missed other variables relevant to auditor switching or client bankruptcy.

A practical implication for the audit profession is the increased awareness of the fact that the financial dependence issues reported in this study extend to auditors with small client companies.

This is the first study to examine fees lost due to auditor switching and client bankruptcy caused by going concern modified opinions in a population of small companies. It contributes to the mixed evidence presented in previous research as to the extent to which going concern modified audit opinions are self-fulfilling prophecies.

The purpose of this paper is to determine whether audit opinions matter in China after the introduction of several key regulatory changes, specifically aimed at strengthening the confidence of investors in the audit function.

The question is addressed by examining the market response to modified audit opinions of companies listed on the Shanghai Stock Exchange.

In contrast to earlier research, this paper does not find evidence that modified audit opinions have significant information value to Chinese investors, despite the regulatory changes. However, when partitioning the sample by year, there is weak evidence of a stock price response to modified audit opinions in 2003. Examination of the impact of different types of audit opinions shows no consistent results.

The results reported in this paper must be considered in light of the limitations inherent in empirical analyses. That is, the relationships identified in this paper are indicative of potential earnings management or audit opinion shopping, however, the paper cannot provide the actual reasons for these empirical results.

The results suggest the Chinese market is beginning to value audit opinions in the same fashion way as more developed markets.

The paper refines market reaction models used in earlier studies through the introduction of additional explanatory variables, together with an improved methodology.

This study aims to investigate whether auditors compromise their independence for economically important clients in countries with a secrecy culture.

The authors empirically examine the research question based on a data set of 33 countries for the period from 1995 to 2018. The dependent variable is the auditors’ propensity to issue modified audit opinions, which is a proxy for auditor independence. The authors use relative client size as a proxy for client importance. The authors adopt the Heckman (1979) two-stage model to mitigate the potential endogeneity issue involved in the selection of Big-N auditors.

Using a large sample of firms and controlling for the firm- and country/region-level factors, this study reveals that both Big-N and non-Big-N auditors are more likely to issue modified audit opinions to clients located in countries with a strong secrecy culture relative to those located in other countries. However, Big-N auditors are more likely to issue modified audit opinions for their economically important clients with a secrecy culture relative to their other clients, while no or weaker evidence is found for non-Big-N auditors. The results are consistent and robust to endogeneity tests and sensitivity analyses.

This study enriches the literature by providing a new perspective on auditor independence that an auditor’s reporting behavior can vary depending on the client’s importance and auditor type, even under the same secrecy culture.

The purpose of this study is to examine the interrelationship between modified audit opinions and earnings management as measured by discretionary accruals and develop a thorough understanding regarding the moderating effect of audit quality on this relation.

This study uses a sample of Tunisian listed firms on the Tunis Stock Exchange during 2006–2013. Four models are developed and tested by using panel logistic and Feasible Generalized Least Squares (FGLS) regressions.

The results show that earnings management increases the likelihood of receiving a modified audit opinions. Then firms receiving modified audit opinions manage earnings more than those receiving clean opinions. It is also discovered that audit quality moderates the relationship between audit opinion and earnings management.

This paper contributes to the literature of both audit and management studies and represents the first effort to examine the relation between audit opinion and earnings management, with audit quality as a moderating variable.

This study extends existing research on earnings management and audit opinion. Thus, this study has the potential to help stakeholders, board of directors, regulators and auditors, who are related with enhancing the supervision of firms and reducing the opportunities given to managers, to engage in earnings management. It constitutes an addition to previous knowledge about audit opinion in the Tunisian context before and after revolution.

The purpose of this paper is to empirically analyze the impacts of motivation for avoiding loss and actual abnormal audit fees on management behaviors of audit opinion shopping.

Using empirical research methods, this study employs regressive models and moderating effect models with data from Chinese listed companies from 2001 to 2008.

By analyzing the empirical data, it is found that strong motivation for avoiding loss has a certain moderating effect on the relationship between abnormal audit fees and audit opinion shopping; abnormal descent of audit fees significantly increases both the likelihood of receiving modified audit opinions of annual financial reports and that of the improvement of audit opinions; listed companies reporting consecutive losses in the last two years have a higher likelihood of an improvement in unfavorable audit opinions because of stronger motivation for avoiding loss and audit opinion shopping of management; and strong motivation for avoiding loss has a significant moderating effect on the relationship between abnormal increase of audit fees and audit opinion shopping.

This study has a significant practical implication for market supervisors, small and medium investors.

The paper classifies abnormal audit fees into abnormal increase and descent of audit fees, and audit opinions differences into the improvement and deterioration of audit opinions, and further empirically analyzes and verifies the moderating effect of motivation for avoiding loss on the relationship between abnormal audit fees and audit opinion shopping.