Impact of Ownership Characteristics on Modified Audit Opinion in Jordan

Saleh Zaid Alkilani,Basariah Salim,Wan Nordin Wan Hussin

doi:10.11648/j.ijafrm.20190403.11

Saleh Zaid Alkilani, Basariah Salim + Show 1 more

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https://doi.org/10.11648/j.ijafrm.20190403.11

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Abstract

It is well established that ownership characteristics are impacted by the quality of financial reporting. The purpose of this work is to examine the role of ownership characteristics in minimising the prospect of corporates obtaining a modified audit opinion in Jordan. Three ownership characteristics [family ownership (FAOWN), institutional ownership (INOWN) and foreign ownership (FAOWN)] and modified audit opinion were studied. The study used 117 samples of corporates listed on the Amman Stock Exchange (ASE). Logistic regression was employed to analyse the association between the modified audit opinions as a dependent variable and ownership characteristics as independent variables. Ownership characteristics are anticipated to be more successful in improving the quality of financial statement, and thus, reduce the prospect of firm obtaining a modified audit opinion. The analysed results from 2012 to 2016 periods of these corporates in Jordan showed that FAOWN and FOOWN validated this projection. Interestingly, the effect of family and FOOWN improve the quality of financial statement, thereby, reduce the cases of a modified audit opinion. Additionally, the study could not find any association impact between the INOWN and modified audit opinion.

Highlights

It is well established fact that ownership characteristic has the potential to effect the supervising mechanisms of firms on quality of financial reporting [1,2,3,4,5,6,7,8]
This study suggested a negative relationship between FOOWN and the modified audit opinion as follows: H3: There is a negative association between foreign ownership and the prospect that a company will receive a modified audit opinion
Audit effort has a positive and significant association with modified audit opinion at 5% level, signifying that auditors dedicate some effort in seeking for material misstatements to fulfil their contractual responsibilities

Summary

Introduction

It is well established fact that ownership characteristic has the potential to effect the supervising mechanisms of firms on quality of financial reporting [1,2,3,4,5,6,7,8]. Auditors issue a modified audit opinion to alert the corporates concerning any dubious or questionable accounting disclosures identified within the reports [19, 20]. One function of an auditor is to ascertain whether the reports prepared by a manager comply with standard accounting principles [5, 47]. An auditor’s validation of financial facts increases the reliability of the report and lessens information risk, misrepresentative, and potentially benefiting both corporate owner and manager [57, 51]

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