Going-concern Audit Opinion Research Articles

PENGARUH OPINION SHOPPING DAN PENGALAMAN AUDITORTERHADAP PENERIMAAN OPINI AUDIT GOING CONCERN DALAM SISI PANDANG PERUSAHAAN AUDITAN

Perusahaan yang mendapatkan opini going concern dari auditor di sebabkan karena kondisi dan peristiwa yang menimbulkan keraguan akan kelangsungan hidup suatu perusahaan. Opini audit going concern merupakan peringatan awal (early warning) bagi para pengguna laporan keuangan guna menghindari kesalahan pengambilan keputusan. Penerimaan opini audit going concern dapat di pengaruhi oleh opinion shopping dan pengalaman Auditor. Penelitian ini bertujuan menganalisis opinion shopping dan pengalaman Auditor terhadap penerimaan opini audit going concern pada perusahaan auditan. Teknik pengambilan sampel dalam penelitian ini adalah purposive sampling yaitu pimpinan perusahaan atau kepala keuangan (kepala accounting/manajer keuangan) yang sudah diaudit oleh Kantor Akuntan Publik di Kota Tangerang, yang memiliki Pengalaman minimal 2 tahun. Jumlah kuesioner yang dianalisis adalah 50 kuesioner. Teknik analisis data yang digunakan dalam penelitian ini adalah analisis regresi berganda. Berdasarkan hasil penelitian ini menunjukan bahwa opinion shopping berpengaruh positif dan signifikan terhadap penerimaan opini audit going concern. Sedangkan pengalaman Auditor tidak berpengaruh positif dan tidak signifikan terhadap penerimaan opini audit going concern.Companies that get the of the auditor's going concern opinionwas caused of conditions and events that give rise to doubts about the viability of a company. Going concern audit opinion is an early warning for the users of the financial statements in order to avoid decision-making errors. Going concern audit opinion can be influenced by the opinion shopping and Auditorexperience. This study aimed to analyze the opinion shoppingand Auditor experienceon going concern audit opinion on the company's audited. The sampling technique in this research was purposive sampling, there arethe director of the company or chief financial officer (chief accounting/finance managers) that have been audited by Public Accountant in Tangerang, which has a minimum of 2 years experience. The number of questionnaires analyzed were 50 questionnaires. The data analysis technique used in this study is multiple regression analysis. Based on the results of this study indicate that opinion shopping have positive and significant impact on going-concern audit opinion. While there is no positif and significant impact on the going-concern audit opinion

Market Reaction to the Going-Concern Modified Audit Opinions of Public Companies After the IFRS Adoption

The objective of this paper is to analyze the market reaction to the auditors’ going-concern audit opinions after the IFRS adoption in Brazil. The event study methodology was applied for the analysis of three public non-financial companies in the first year in which they received a qualified opinion about uncertainties as to their capacity to continue operating. We observed that there was just one company with a market reaction for stock price and traded volume on the day the auditors’ report was released. The results of this study are relevant because they present new evidence in the Brazilian context, which may be added to the existing literature and can be used as practical examples to understand the complexity and importance of the theme.

The Impact of a Going-Concern Audit Opinion on Board of Directors

Paper examines the impact of a going-concern audit opinion on the corporate governance, measured by the changes in board of directors’ composition. External auditor’s opinion is used as a measure to address agency problems in companies. We examine this impact on sample of 55 companies listed on the Banja Luka Stock Exchange which have received going-concern audit opinion for 2013 financial reports. In this paper, the relationship between going-concern audit opinion and the corporate governance is investigated observing changes in board of director composition and additional requests for rigorous board performance evaluation after the shareholder’s assembly have received external auditor’s report. Results show that board of directors of companies that received going-concern audit opinions have not suffered serious consequences such as rigorous board performance evaluation, reduction of board size or changes of board members. This highlights the importance of measures that need to be put in place in order to increase of external auditor’s role in corporate governance.

Factors Associated With and Long Term Stock Price Performance of Firms Making Disclosures of Auditor-Client Frictions

Financial Reporting Release (FRR) No. 31 (SEC 1988) changed the disclosure requirements about auditor-client frictions (i.e., disagreements and reportable events) in auditor change announcements. The first goal of the study is to document factors associated with an auditor change sample disclosing auditor-client frictions compared with an auditor change sample not making such disclosures in auditor change announcements. We use 5,128 observations of auditor changes obtained from a sample period following enactment of FRR No. 31. In the fiscal periods in which the frictions are reported to have occurred, firms disclosing auditor-client frictions tend to have (1) higher levels of audit risk, (2) deteriorating financial condition, (3) higher levels of growth, (4) higher incidence of new going-concern audit opinion, (5) more auditor resignations, (6) greater incidence of Big 5/6 predecessor auditors, and (6) lower incidence of Big 5/6 successor auditors. We also find that auditor change firms with disclosures of auditor-client frictions tend to be (7) younger firms, (8) exhibit higher audit risk, and interestingly, occur in (9) larger firms with (10) increasing levels of institutional ownership. The second goal of the study is motivated by a growing body of empirical evidence from a variety of contexts that indicates market participants under-react to certain disclosures. Also, the SEC (1988) suggests that both types of auditor-client frictions may be potential early warning signs of trouble. We find that firms disclosing auditor-client frictions exhibit long-run drift in stock prices in the same direction as the initial price reaction. Stock prices indicate that investors under-react to disclosures about auditor-client frictions in auditor change announcements. The evidence of under-reaction to the auditor change sample disclosing auditor-client frictions is robust to alternative asset pricing models and tests suggested by the literature documenting appropriate research design choices for long-run stock price tests.

Does Revenue-Expense Matching Relate To Going-Concern Audit Opinion Conditional On Firm’s Financial Distress?

This paper investigates how firms manage the revenue-expense relationship in the presence of a going-concern audit opinion (GCO). Using Korean data, we find that firms with GCOs both delay and accelerate recognition of current expenses for current revenues. We also find that firms in severe financial distress that receive GCOs exhibit conservative accounting, whereas GCO firms in relatively less financial trouble adopt aggressive accounting. Overall, our results imply that firms’ matching extent and behavior provide useful information regarding financial reporting and can explain the earnings management behavior of firms with GCOs.

An analysis of determinants of going concern audit opinion: Evidence from Spain stock exchange

Purpose: The main objective of this article is to go in-depth into the relationship between going concern audit opinion and certain characteristics of the company and auditor, including financial decline. Design/methodology/approach: A Logit analysis was carried out in order to enable us to discover the probability of receiving a going concern audit opinion. Findings: Characteristics of the company and characteristics of the auditor are discussed, and the analysis indicates that it is not financial decline, but rather registering losses and being audited by a small-scale auditor, that increase the likelihood of a company receiving a going concern audit opinion. Practical implications: The results obtained are interesting for the profession and users because they provide evidence of the reasons that converge in the cases where a going concern audit opinion is included in the auditing reports of companies characterised by being immersed in a financial crisis. Originality/value: This article considers the circumstances of both the company and the auditing process, which influence the fact that the auditing report includes a going concern audit opinion. In addition, the article includes the financial decline, and let us to analyze if the decline of the company’s financial position between t-1 and t causes the auditor to include a going concern audit opinion.

Nonprofit Stakeholder Response to Going-Concern Audit Opinions

Using a sample of industry-diverse nonprofit organizations, we find support for stakeholders’ use of nonprofit going-concern audit opinion (GCO) reports. We study the reactions of the three largest nonprofit stakeholder groups: donors, service recipients, and managers. Our findings suggest that although large (sophisticated) donors respond negatively to a GCO, small (unsophisticated) donors contribute more following a GCO. We also find that service recipients spend more at service-oriented organizations than at charitable nonprofits following a GCO. Finally, managers respond to a GCO by increasing organizational efficiency at service-oriented organizations. Taken together, the evidence suggests that GCOs are informative in the nonprofit sector, and stakeholders’ responses to GCOs depend on stakeholder and organization type.

The Going Concern Opinion and the Adverse Credit Rating: An Analysis of Their Relationship

This paper examines the relationship between going concern opinions issued by the Big 4 audit firms and adverse credit ratings from the two largest credit ratings agencies (CRAs), Standard & Poor’s (S&P) and Moody’s. The paper focuses on audit opinions and credit ratings of firms that later file for bankruptcy. The relationship is examined from both sides. We examine whether credit ratings inform auditors in the making of going-concern (GC) audit opinion decisions, and whether GC opinions have an impact on a firm’s credit ratings. The analysis is undertaken on a sample of firms that filed for bankruptcy between the 1 January 2002 and 31 December 2013 that also had an audit opinion signed during the 12 months before bankruptcy, along with a credit rating issued by either or both, S&P and Moody’s. The results show that the likelihood of an auditor issuing a GC opinion is related to the credit rating issued the month before by both S&P and Moody’s. Results also show that S&P reacted in the month after an auditor issued a GC opinion by downgrading its ratings 68% of the time. However, Moody’s did not react in the same way, downgrading their ratings only 24% of the time. This paper sheds light on the relationship between audit opinions and credit ratings in relation to distressed companies. This is useful to better understand the wider relationship between auditors and credit rating agencies, and to be able to consider the future of these services.

Mandatory Audit Firm Rotation and Audit Quality

Recently, regulators and policy makers who witnessed the global financial crisis during 20072009 began considering a variety of ways to enhance auditor independence and financial reporting quality, ultimately aiming at investor protection. Since the enactment of the SarbanesOxley Act of 2002 (SOX), the Mandatory Audit Firm Rotation (MAFR) requirement has once again received significant attention from regulators and policy makers around the world, including the European Union (EU) and the U.S. Public Companies Accounting Oversight Board (PCAOB). In this paper, we investigate whether MAFR enhances audit quality in Korea. We find that under MAFR, newly rotated auditors are more likely to issue first-time going-concern audit opinions to financially distressed firms during their initial (first-year) financial statement audit compared with under the Voluntary Audit Firm Change (VAFC). Moreover, firms audited by mandatorily rotated new auditors have less discretionary accruals and higher accrual quality than those audited by voluntarily switched new auditors during the initial audit engagement. These results of earnings quality are more pronounced for firms that received a first-time going-concern audit opinion during the initial financial statement audit under MAFR. Taken together, the findings suggest that MAFR produces better audit quality than the VAFC. Further, our study provides implications for regulators and policy makers of countries considering the adoption of MAFR.

Implications of Auditor Characteristics and Directors’ and Officers’ Liability Insurance for Going-Concern Audit Opinions: Evidence from Taiwan

This study explores the association among auditor characteristics, directors’ and officers’ (D&O) insurance, and auditors’ intention to issue going-concern opinions. For the insured decision, the results show that clients of auditors with greater market shares, better reputation (Big 4), and those that had been punished had higher D&O insurance coverage. For the results of audit opinion, the results show that the industry-specific experience of auditors and audit firm size are significantly negatively associated with the issuing of going-concern opinion. It is consistent with our expectations that since Big 4 auditors may share more litigation risk and possess more loss coverage of audit failure of D&O insurance, the effects of D&O insurance on auditors’ intention of issuing going-concern opinions are more significant for Big 4 auditors.

Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

SUMMARYThe recent growth in non-audit services (NAS) at the major audit firms has the attention of auditing regulators. On several occasions recently, board members of the Public Company Accounting Oversight Board (PCAOB) have indicated that the rise in NAS may place auditor independence at risk (Harris 2014; Tysiac 2014). Impaired independence can result in audit failure, which includes situations when auditors fail to issue going-concern (GC) audit opinions to soon-to-be bankrupt companies. In this paper, I examine the association between the propensity of auditors to issue GC opinions and NAS fees (and audit fees) to 203 bankrupt companies during 2002–2013. In analysis, I find no significant relation between GC decisions and NAS fees and audit fees. My results may interest U.S. regulators, who recently expressed concerns about the threat to auditor independence from the spike in NAS at the major firms.Data Availability: Publicly available from sources identified in the paper.

NON-FINANCIAL FACTORS IN THE GOING-CONCERN OPINION

This paper describes the influence of tenure, auditor reputation, disclosure, and the size of the client company on a going concern opinion. Audit opinion issued by the auditor is expected by users of the quality of information, because as the basis for investment decisions. Going-concern audit opinion is an opinion issued by auditors to ascertain whether the company can maintain its existence. Studies on the factors that affect the audit opinion have been carried out both overseas and in Indonesia. The factors used are vary and the results are not conclusive. This study uses 89 sample firms listed on the Indonesia Stock Exchange in 2003-2008. Logit regression analysis shows that the tenure, auditor reputation, disclosure has a significant on going-concern opinion while the client company size has no effect on going-concern opinion. Keywords: tenure, auditor reputation, disclosure, size, going-concern opinion

Audit opinion and earnings management: Evidence from Greece

This study examines the relationship between audit opinions and earnings management, as measured by discretionary accruals, for listed firms on the Athens Stock Exchange (ASE). We divide the qualified audit opinions into two categories: qualified for the going-concern uncertainty and qualified for other reasons. The results indicate that audit opinions are not related to earnings management. Client financial characteristics, such as profitability and size are determinants of the going-concern audit opinion decision. The decision of auditors to issue qualified opinions for other reasons is explained by the type of audit opinion issued in the previous year.

PENGARUH KOMPETENSI DAN INDEPENDENSI AUDITOR TERHADAP OPINI AUDIT GOING CONCERN MELALUI KUALITAS AUDIT (STUDI EMPIRIS PADA KANTOR AKUTAN PUBLIK DI JAWA TIMUR)

<p>Abtract</p> <p>This study examined the effect of the competence and independence of the auditor's going-concern opinions through quality audits. Tests conducted on 109 auditors who worked on the public accounting firm in East Java. Proxied competence level of education, training and experience, and professional education, while independence is proxied relationships with clients, the pressure from the client, the amount of non-audit services and feesThe results showed the level of education, training and experience, professional education, relationships with clients and pressure from clients positive influence going concern audit opinion, while the non-audit services and the amount of the fee has no effect. The level of education, training and experience, the pressure from clients and non-audit services positive effect on audit quality, while professional education, relationships with clients and the amount of the fee has no effect. The results also showed a positive effect on the quality of audit opinions going concern, but it can only mediate audit quality education, training and experience, and the pressure from the client to the going-concern audit opinion. Based on these results it can be concluded that the competence, independence and audit quality is a determinant of the going concern opinions.</p> <p> </p> <p class="Default">Keywords: Competence auditor, auditor independence, audit quality, going concern opinions.</p>

How do auditors perceive CEO's risk-taking incentives?

Prior literature documents that executive compensation influences managerial risk preferences through executives’ portfolio sensitivities to changes in stock prices (delta) and stock-return volatility (vega). Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that auditors charge higher audit fees when standard audit procedures do not allow auditors to reduce audit risk including the risk arising from higher business risk. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and audit fees. We also find a negative relation between CEO portfolio deltas and the issuance of going-concern audit opinions (GCO).

Auditor Reporting under Section 404: The Association between the Internal Control and Going Concern Audit Opinions

Section 404 of the Sarbanes-Oxley Act and Auditing Standard No. 2 introduced integrated audits of internal control over financial reporting and the financial statements. Since the internal control and audit reports are joint products of the audit process, we examine whether the issuance of an internal control material weakness opinion (MWO) influences, other things equal, the issuance of a going concern audit opinion (GCO). Using a sample of financially stressed companies, we find that the issuance of a MWO increases the likelihood of a GCO, suggesting that auditors do respond to the uncertainty surrounding a MWO by issuing a GCO. Further analyses reveal that the positive association between MWO and GCO obtains for company-level material weaknesses, which are known to be difficult to “audit-around”, and for more litigious industries. We also compare these results with those for a Section 302 sample with manager-reported (but not audited) material weaknesses, and find that the material weakness reported under Section 302 does not impact the GCO. Hence, the auditors respond to the uncertainty surrounding material weaknesses only when they issue MWOs, and not due to the existence of material weaknesses per se – that is, the issuance of a MWO seems to induce further conservatism in the auditor’s GCO decision. We conclude that researchers and policymakers should consider the overall effect of Section 404 on the financial statement audit.

Pengaruh Pergantian Auditor dan Kualitas Audit terhadap Opini Audit Going Concern: Studi Empiris Perusahaan Manufaktur di Bursa Efek Indonesia

This study aims to analyze the effect of auditor switching and audit quality on going concern audit opinion in listed manufacturing companies of the Indonesia Stock Exchange (BEI) in the year 2006 to 2008. Auditor switching was marked by a change to the Public Accountant firms (KAP) who perform the audits or companies used the services of an auditor different than before. Audit quality is proxied by the scale of the BigFour auditors or non-Big Four. Going-concern audit opinion is the explanation given by the auditor if there is any doubt regarding the ability of the company to survive in the future. This study used 70 samples out of 452 populations, using purposive sampling technique in which the main criterion is the sample company received going-concern audit opinion in the year preceding the auditor switched. Results of the study showed that the change of auditors and audit quality is not a factor in determining going concern audit opinion of the company.

Why the Going-Concern Anomaly: Gambling in the Market?

This paper investigates why the market fails to incorporate the adverse information conveyed by the going-concern (GC) opinion in a timely manner. Our main conjecture is that the lottery-like features of GC stocks attract a predominantly retail clientele who use those stocks to gamble in the market. Such trading behavior leads to the underreaction to the GC event and significant downward drift in prices over the following year. Using a sample of first time GC firms from 1993 to 2007 we show that GC stocks have extreme lottery-type characteristics. We further demonstrate that retail investors have a proclivity to be net-buyers of these stocks around the GC event, and such contrarian behavior is directly related to the lottery-like nature of GC firms. Using individual investor-level trading, socioeconomic, and demographic data we confirm that retail investors who are known to have a greater propensity to gamble are more likely to trade GC stocks. We rule out several alternative explanations for our findings, and conclude that gambling-motivated trading behavior of retail investors is the most likely driver of the anomalous short-term market reaction and the associated longer-term market response following the release of going-concern audit opinion.

The Effect of Going-Concern Opinion Reliability on Market Prices

Large unexpected corporate failures associated with the global financial crisis heightened investors’ and regulators’ concerns about the diagnosticity of auditors’ going-concern opinions. Consistent with these concerns, extant research indicates that going-concern opinions are only moderately diagnostic at best, with only fifty to sixty percent of financially distressed firms receiving going-concern audit opinions prior to bankruptcy. Using an experimental market, we show that under conditions of moderate diagnosticity, investors discount the going-concern signal. Compared to a market with high diagnosticity, investors penalize the stock prices of non-bankrupt firms and fail to adequately discount the prices of bankrupt firms, even in instances when the going-concern signal accurately predicted the bankruptcy outcome. Interestingly, we find that a market with moderately diagnostic going-concern opinions provides no greater informational value than a market without going-concern opinions altogether. Specifically, we demonstrate that stock price behavior and, in turn, average investor earnings are no different in a market with moderate diagnosticity as compared to a market that lacks any going-concern signal. These findings have implications for regulators who are interested in improving the quality of going-concern opinions.

Evidence On The Effect Of Financial Distress On Type II Audit Errors

A Type II audit error is defined as the failure of an auditor to issue a going concern audit opinion for a client that subsequently declares bankruptcy. Prior research studies have examined audit effectiveness (as measured by Type II audit errors) following the Sarbanes-Oxley Act of 2002, and have generally found an increase in the auditors likelihood of issuing going-concern audit opinions. This increase in the auditors likelihood of issuing a going concern opinion post-Sarbanes-Oxley has been interpreted as an increase in the level of auditor conservatism. [For example, see Geiger et al. (2005) and Fargher and Jiang (2008)]. However, prior studies have often limited their analysis of going-concern audit effectiveness to firms that were already in financial distress, and have also failed to specifically address the extent to which varying levels of financial distress affects the auditors propensity to issue a going-concern opinion. This raises the main research questions addressed in this study: Does the relationship between financial distress and the probability of receiving a going-concern differ for distressed versus non-distressed firms, and more importantly, to what extent do varying levels of financial distress affect this relationship? We find that the relationship between financial distress and the probability of receiving a going-concern opinion is not linear, as is assumed in prior studies. Rather, we find that the positive relationship between financial distress and going-concern opinions applies only for certain levels of financial distress. These results have implications both in the interpretation of previous auditing research that has incorporated variables for financial distress, as well as implications for the design and interpretation of future research.