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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.

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.

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).

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

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.

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.

Type of audit opinion is important for all stakeholders. Firm-specific characteristics have a direct impact on the type of audit opinion. The purpose of this study is to examine the association between accounting comparability (as a micro level characteristic), financial reporting quality (as a macro level characteristic) and audit opinions.

This study uses a multivariate regression analysis to tests it hypotheses to a sample of firms listed in Tehran Stock Exchange during 2015–2019. To measure accounting comparability, the authors use De Franco et al. (2011) model, and Hutton et al. (2009) model to measure financial reporting quality. The authors use type of audit opinion, and auditor's remarks (explanatory notes) as the measure for audit opinions.

The authors find a negative association between accounting comparability, and the proxies for audit opinion. The authors also find that a negative association between financial reporting quality and audit opinions. These results suggest that higher accounting comparability, and higher financial reporting quality (proxied by earnings quality) increases auditor tendency to issue unmodified audit opinion.

To the authors' best knowledge, this is the first study that empirically examines the association between accounting comparability, financial reporting quality and audit opinion. This study provides empirical support for the theoretical views on the association between financial reporting quality and audit opinion. The results could be of interest of both auditors and managers, especially in emerging capital markets, who seek to improve financial reporting quality.

The purpose of this paper is to examine whether the voluntary implementation of an internal audit department (IAD) by municipalities has any influence on external auditors' opinions.

This study population comprises the 308 Portuguese municipalities, from which the authors extracted a sample of 179. Financial and audit reports were collected from the period under analysis (2014–2017). The sample was then divided into two groups: municipalities that had voluntarily implemented an IAD and those that had not. Internal audit departments were characterized according to their robustness – whether they were more or less robust. First, a descriptive statistical analysis of the dataset was performed to analyze the representativeness of the sample and to extract insights. To address the research questions, ordinal random effect regression models were considered.

Contrary to the authors' expectations, the voluntary implementation of an IAD had no influence on the audit report type. However, when the authors refined the approach to include the robustness of the IAD, it became clear that this variable does influence the report issued by the external auditor.

This paper contributes to the current literature by determining the effects of the robustness of IADs on municipality audit reports. As far as the authors know, this paper is novel. Since auditing plays an important role in the transparency of public financial statements and in promoting equity, this study shows that a robust IAD is an advantage in the pursuit of these goals.

This paper aims to determine whether audit opinions in Morocco, an emerging market, are value relevant to the stock market, through the investigation of the market reaction to the issuance of modified audit opinions (MAOs).

The event study approach is used. The data are derived from the financial reports of listed companies on the Casablanca Stock Exchange over a period of 10 years from 2010 to 2019.

This paper does not find evidence that the market reacts to the issuance of MAOs when grouped together. When partitioning the sample by types, there is an evidence of a stock market reaction to qualified audit opinions and the qualified audit opinions with observation paragraph when they are combined with a negative variation of earnings per share. Examination of the impact of different natures of qualifications shows no consistent results and that the market does not distinguish between natures of qualifications.

These results may be due to the fact that some investors have information about the audit opinion long before it is made public, due to privileged access to audit opinions, or that investors underestimate audit opinions relative to other financial indicators.

This study contributes to the existing literature by investigating an emerging market, not previously tested, after the introduction of several regulatory reforms in Moroccan market aimed at enhancing transparency in financial reporting. It refines the market reaction models used in previous studies by using both ordinary least squares and the Scholes–Williams techniques that correct for the effect of thin trading on the market index. In addition, special attention is given to studying the market reaction to each type of MAOs and to each natures of qualifications.

The purpose of this study is to explore the economic impact of financial restatements by major customers on the audit opinion of their suppliers, showing that non-financial information disclosure potentially helps auditors make better assessments.

Using a sample of China’s listed firms from 2007 to 2021, the authors aim to find the relationship between customers’ financial restatements and their suppliers’ audit opinions. Heckman selection model, placebo tests and other robustness checks are used as well.

The findings reveal that customers’ financial restatements have a significant effect on the likelihood of suppliers receiving modified audit opinions. This relationship is pronounced when suppliers face a higher level of financial constraints, exhibit poorer accounting conservatism or receive more negative media coverage. Additionally, this effect occurs through increased business risk and information risk, which heightens auditors’ perceived audit risk. Moreover, the study highlights the influence of switching costs, auditor expertise and restatement severity on this relationship.

Risks originating from customers can spread along the supply chain, emphasizing the necessity for auditors to give heightened attention to both the audited firms and their customer information. Moreover, regulators should carefully consider the important impact of customer information disclosures to maximize the protection of the interests of external information users.

This study not only confirms the crucial role of customer information disclosures in annual reports for stakeholders and auditors but also contributes to the existing literature on customer–supplier relationships.

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.

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.

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.

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.

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.

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.

The purpose of this study is to examine whether companies with high audit quality (AQ) are expected to use trade credit (TC) as a financing source. Traditionally, vendors are most likely to extend TC to creditworthy customers.

The author uses the data from 134,099 firm-year observations of nine Asian emerging markets from 2001 to 2017. Further, to check the impact of AQ on trade credit, the authors employ ordinary least square (OLS) with fixed effects, cluster effect regression and random effect.

The findings indicate that vendors extend more TC to the companies audited by the BIG4 auditors as, these independent practitioners have greater competencies, expert intellectual capital, global networking connections, and high investment in information technology. The authors, therefore, conjecture that the company's use of TC increases with their improved AQ, especially audited by BIG4. The results are found consistent with this prediction and robust to the alternative measures of trade credit. Similarly, this positive association is more pronounced with the BIG4 partner's unqualified audit opinion.

This study uses the sample of Asian Emerging countries but the researchers cannot generalize the results to developed countries or other regions.

This paper's findings have significant implications for the management, board of directors, shareholders and suppliers. Further, results are in favor of appointing BIG4 auditors to gain the trust of suppliers.

Despite the wide-ranging literature that discusses the importance of quality audits in enhancing the firms' financial disclosures that leads to better access to finance through investors and lenders. But the TC as a financing source is ignored in relation to AQ. The study’s results extend the literature associating companies' AQ with financial decisions.

The study examines the changes in audit market concentration, auditor choice and audit quality in Russia following International Financial Reporting Standards (IFRS) adoption. Scholars have called for further examination of the effects of IFRS adoption on auditors, with an emphasis on the importance of analyzing emerging markets that are characterized by enforcement challenges and lack of proper infrastructure. It focuses on a unique feature of Russian companies – dual audits under Russian Accounting Standards (RAS) and IFRS – and investigates changes in audit concentration and audit quality for the two audit markets.

The authors rely on the audited financial statements of Russian public companies and perform pre-/post-IFRS adoption estimation using a logit regression to ascertain whether public firms change auditors from local firms with limited IFRS expertise to those with global reputation, namely Big 4 audit firms. Further, they examine whether the change in audit market concentration post-2012 affects audit quality as proxied by companies' propensity to receive a modified audit opinion and discretionary accruals. Auditor attributes were hand-collected from audited financial statements and matched with financial variables from Datastream.

The IFRS audit market was dominated by the Big 4 audit firms prior to 2012, and there is strong evidence that audit market share (concentration) increases for IFRS reports but not for RAS reports. In addition, companies are more likely to choose a Big 4 audit firm for an RAS audit, conditional upon a Big 4 firm conducting the IFRS audit. The authors do not find evidence of decrease in the probability of audit firms issuing a modified audit opinion under either RAS or IFRS, indicating that, in the Russian setting, increased auditor concentration post-IFRS adoption does not lead to enhanced risk or decline in audit quality. Moreover, they find that discretionary accruals decline post-2012. Overall, the findings indicate that the concern of global regulators regarding audit market concentration is not justified.

The Russian reporting environment is unique and generally characterized by significant agency problems, and the study’s estimation sample is not large, compared to prior studies conducted predominantly in Western jurisdictions. Nevertheless, the authors shed light on the audit concentration phenomenon within emerging markets, for which empirical evidence is scarce. Future research could explore the impact of other capital market events and exogenous shocks, not limited to IFRS adoption, on the characteristics of Russia's audit market.

The IFRS reporting regime is commonly associated with enhanced reporting quality and improved information transparency among public companies. Yet, impairment of audit quality as a result of IFRS-driven increase in audit market share of Big 4 can potentially negate these capital market effects. This study shows that the concerns of global regulators are not valid and that audit quality does not change with increased share of Big 4 post-IFRS adoption.

Dual audits, whereby companies must prepare two sets of financial statements per the IFRS mandate, are not unique to Russia, and the evidence of IFRS reporting on the structural changes in the audit market and implications for audit quality under a dual regime is scarce. Accordingly, the study's findings are important and timely and are expected to aid regulators of countries that have announced or are contemplating the adoption of IFRS for public reporting purposes.

Audit consortium of joint and dual audits is one of the most controversial mechanisms aimed at improving audit quality and resolving several related debatable issues. This study aims to empirically investigate the impact of audit consortium on audit quality assessment in Egypt. It specifically examines whether audit opinion modification level is triggered by joint and dual audits existence and whether it is influenced by the relative importance of the auditor pair combination types.

A sample of companies listed on the Egyptian Stock Exchange constituting the EGX 30 index is examined over a period of five years, from 2016 to 2020. A quantitative research methodology is used, using content analysis of companies’ audit reports and carrying out longitudinal panel ordinary least squares multiple regression tests.

Results show that audit quality is significantly enhanced by conducting joint and dual audits of Egyptian companies’ financial statements. Findings indicate that both joint and dual audits significantly increase auditors’ propensity to modify audit opinions as compared to companies that engage in single audits. However, this increase in audit quality is not supported by the presence of Big 4 joint auditors or affiliated joint auditors, while the impact of Big 4 dual auditors cannot be confirmed. Nevertheless, such a potential increase in audit opinion modification is boosted by the presence of affiliated dual auditors, which appears to translate into higher quality.

The study has important implications for researchers, corporates, those charged with governance, financial statement users, auditors, regulators and standard setters, who might be interested in whether an audit consortium and a particular auditor pair combination are associated with superior audit quality. It provides empirical evidence that might contribute to the continuous challenge of promoting the quality and effectiveness of the external audit.

This study adds to the relatively limited and challenging literature on the potential contribution of audit consortium, using audit opinion modification level as a direct assessment of audit quality. It extends the scope of prior research by examining the existence of joint and dual audits and the relative importance of joint and dual auditor pair combination types. The study provides key insights from a distinctive and complex emerging audit market.

The setting of private finance companies that failed in New Zealand during 2006-2012 was characterized by weaker corporate governance and enforcement of securities law. This paper aims to explore audit failure in this setting and examine whether auditors erred in their audits of the failed finance companies and whether the audit failure rate of Big N auditors was different from that of non-Big N auditors.

This paper adopts the archival research method and uses three sets of evidence to assess audit failure – the frequency of going concern opinion (GCO) prior to failure, misstatements in the last audited financial statements, and the violation of the Code of Ethics.

The study finds that only 41 per cent of the sample companies received the GCO in their last audit prior to failure and provides evidence of material misstatements in the financial statements of a number of failed finance companies that received clean audit opinions prior to failure and breaches of the Code of Ethics by a number of auditors. These results strongly indicate audit failure for a number of failed finance companies. The audit failure rate, however, appears less for Big N auditors than for non-Big N auditors.

The study draws attention of the stock market regulator and the accounting profession to an area, the audit of private finance companies, that needs better quality audits.

This paper provides systematic evidence of audit failure in failed finance companies in New Zealand. It also furnishes preliminary evidence of Big N auditors compensating for weaker corporate governance.