Issuance Of Going Concern Opinions Research Articles

PENGARUH UKURAN PERUSAHAAN, PROFITABILITAS, DAN LIKUIDITAS TERHADAP PENERIMAAN OPINI AUDIT GOING CONCERN

Issuance of going concern opinion that influences inventor’s decisions, makes going concern opinion matter that must receive attention for the company. This study aims to provide empirical evidence regarding the effect of company size, profitability, and liquidity on the acceptance of going concern opinions in companies. Manufacturing companies in the basic and chemical industry sectors listed on the Indonesia Stock Exchange in 2019-2020 are the objects selected in the research. As for the sample selection in this study using purposive sampling with logistic regression data analysis. From the research conducted, it can be found that the size of the company has no effect on the acceptance of going concern audit opinions, while profitability and liquidity have an influence on the acceptance of going concern opinions.

Is an Auditor's Propensity to Issue Going Concern Opinions a Valid Measure of Audit Quality?

AbstractA number of previous studies use auditor propensity to issue a going concern opinion (GCO) as a proxy of audit quality when examining a sample of financially distressed firms. This study examines whether audit quality (measured by discretionary accruals) influences the probability of financially distressed firms receiving GCOs using a non‐specific sample of 2937 firm‐year observations from Australia over the period 2011–2015. The study first investigates the association between financially distressed firms and the issuance of GCOs. This association is then re‐tested after separating the total sample into low and high audit quality subsamples. The results indicate that financially distressed firms are more likely to receive GCOs, confirming the application of ASA 570 Going Concern. However, financially distressed firms that receive GCOs from their auditors are limited to firms that have higher‐quality audits.

Independent and joint effects of audit partner tenure and non-audit fees on audit quality

We examine the individual and joint effects of auditors’ non-audit services (NAS)/abnormal NAS fees and length of audit partner tenure on audit quality. Our results raise questions about the ‘one size fits all’ approach imposed by the current audit partner rotation requirement in Australia as a result of (1) a learning differentiation that we observe between Big 4 and non-Big 4 auditors and (2) higher discretionary accruals associated with non-Big 4 auditors. We find abnormal NAS fees to have a positive association with both absolute and positive (income-increasing) values of discretionary accruals for firms with short audit partner tenure. NAS/abnormal NAS fees are also negatively associated with the issuance of going concern opinions to financially distressed firms when partner tenure is short. In terms of policy implications, regulators are able to gauge the efficacy of the CLERP 9 reforms which currently impose a five year mandatory audit partner rotation requirement.

The effect of real activities manipulation on going concern audit opinions for financially distressed companies

PurposeThis study aims to examine the effect of real activities manipulation (RAM) on auditors’ decision of issuing going concern (GC) opinions for distressed companies.Design/methodology/approachThis study estimates and examines three types of RAM: reduction of discretionary expenses, sales manipulation and overproduction. It investigates the effect of RAM on auditor reporting conservatism by including the three measures of RAM methods in logistic regressions that explain the issuance of going concern opinions. The authors perform the analysis specifically on distressed firms for 2004-2013 period.FindingsThis study finds a significant and positive association between RAM and the likelihood of receiving going concern opinion in the financial distressed firm sample, suggesting that client’s abnormal business activity affects the auditor reporting conservatism.Practical implicationsThis study provides evidence that auditors make going concern reporting decisions in consideration of the client’s abnormal operating decisions and management’s opportunism.Originality/valueRecent literature argues that auditors have little recourse other than to resign if a client uses RAM to impact earnings or the financial statements, and hence the enhanced audit quality in the post-SOX period is due to the shift from using accruals management to RAM (Cohen et al., 2008; Chi et al., 2011; Kim and Park, 2014). The evidence provided in this study indicates that auditors report more conservatively (rather than simply resign) in response to the aggressive RAM.

Why Shouldn't Higher IQ Audit Partners Deliver Better Audits?: A Discussion of Kallunki, Kallunki, Niemi and Nilsson

Kallunki, Kallunki, Niemi, and Nilsson (2018, hereafter KKNN) obtain a comprehensive dataset of cognitive abilities (i.e., intelligence quotient or IQ) for 407 male audit partners in Sweden. They find negative associations between partner IQ and the propensity to make errors in the issuance of going concern opinions and income-increasing discretionary accruals, as well as a positive association between partner IQ and audit fees. KKNN argue that this evidence is consistent with smarter auditors delivering higher quality audits. While the evidence in KKNN may not appear too surprising, I discuss how it advances our understanding of whether individual engagement partner characteristics matter from an audit quality standpoint. This discussion highlights the factors that could strengthen or moderate the relation between partner IQ and audit quality. IQ likely can affect audit quality through several channels, such as a more effective application of prior knowledge, a higher ability to learn, and reduced incentives to shirk. I highlight particularities of KKNN’s setting and show that their evidence probably cannot be directly generalized to publicly traded corporations outside of Sweden. Finally, I provide suggestions for future research.

Consequences of Going Concern Opinion for Financial Reports of Business Firms and Capital Markets with Auditor Reputation as a Moderation Variable - An Experimental Study

1. Introduction In Indonesia, based on SA (Audit Standard) Section 570-Business Continuity (IAPI, 2013), auditors are allowed to publish an opinion that contains a description of the auditor's doubts on the ability of a company to maintain its viability. This opinion is known as going concern opinion (GCO). Conditions and events that trigger the auditor to issue GCO are also stated in SA 570. Research on the GCO usually focuses on (1) auditor judgment in determining whether the auditor needs to modify the audit opinion by giving an explanation about the viability, (2) errors that may occur in the issuance of GCO, (3) individual GCO consequences for companies receiving GCO (announcing firms), (4) GCO consequences for other companies in the same industry (rival firms). There have not been many researchs studying the possibility of the GCO to play an important role in the stabilization of the stock price in a stock market or to play an important role in enhancing the credibility of financial statements for other companies which do not receive GCO (Tuttle and Vandervelde, 2009). There has been no study that simultaneously examines the consequences of GCO for announcing firms, rival firms, and the overall capital market using the same data source. Therefore, this study will examine the consequences of GCO for announcing firms, rival firms and the capital market as a whole. Researches on the consequences of GCO for announcing firms generally show that according to investors the GCO is relevant to assess the companies' share price. O'Reilly (2010), who examined the consequences of GCO for announcing firms argues that announcing firms experienced a significant decline in stock prices. Stock-price estimation made by investors was much reduced when a company received GCO than when it received an unqualified opinion. This indicates that GCO is bad news for announcing firms. GCO consequences for rival firms indicate one of two phenomena, namely competitive effect or contagion effect. Competitive effect occurs when rival firms get the positive impact from other companies in the same industry which receive GCO (indicated by an increase in the stock prices of rival firms). The contagion effect occurs when rival firms get the negative impact of the presence of other companies in the same industry which obtain GCO (indicated by a decrease in the stock prices of rival firms). Researches on the consequences of GCO for rival firms generally show support for competitive effect. Elliott et al. (2006) show that at the moment when certain companies receive GCO in the real estate industry, investors will move their business and their holdings to rival firms. It can be stated that Elliott et al. (2006) show more support for the competitive effect. This indicates that GCO is good news for rival firms. Coelho et al. (2012) show that rival firms experience positive abnormal returns and announcing firms experience negative abnormal returns on the date of the audit report. It can be concluded that Coelho et al. (2012) show more support for the competitive effect than the contagion effect. This indicates that GCO is good news for rival firms, but is bad news for announcing firms.The possibility as to whether the competitive effect can be turned into contagion effect has been rarely investigated. This study used an experimental method to manipulate the number of GCOs in every industry. Thus, the results should show whether at the time when the number of GCOs increases in an industry, the benefits gained by rival firms will decrease. Research on the consequences of GCO for the stock market as a whole is still rarely conducted. This is due to the difficulty in obtaining the required data. Therefore, Tuttle and Vanderveldes (2009) used an experimental method to manipulate GCO by making two experimental markets (one with GCO and the other without GCO). The market with GCO was a capital market in which there was GCO, while the market without GCO was a capital market in which there was no GCO. …

Audit firm tenure and audit qualifications in Spain: a multinomial approach

The Green Paper on Audit Policy by the European Commission has questioned the current regulatory framework of audit rotation in the European Union and it has encouraged additional research about the effects of long audit firm tenures on independence. Prior research has mostly limited to examine audit qualifications for reasons of going concern with samples of financially distressed firms. Such approach presents limitations in terms of the generalization of results. The approach we propose allows, on the one hand, for the inclusion of all types of audit qualifications in the analysis; while, on the other hand, it takes into account the particularly serious implications of going-concern qualified opinions for both, the auditor and the audited firm. Our results show that auditors seem willing to sacrifice independence in lengthy engagements, but only regarding non-going-concern qualified opinions. This result might have some interesting implications for policy makers, particularly in the current discussion about the necessity of mandatory audit firm rotation. If, as most papers do, we measure auditor independence only through the issuance of going-concern opinions, a mandatory firm rotation rule does not seem to be necessary. However, if all types of qualifications are considered, mandatory firm rotation could increase independence.

Does Auditor Tenure Improve Audit Quality? Moderating Effects of Industry Specialization and Fee Dependence

We investigate whether the relation between auditor tenure and audit quality is conditional on auditor specialization and fee dependence. Although prior studies have investigated the relation between extended auditor-client tenure and audit quality, none has examined how this relation is jointly influenced by both auditor specialization and fee dependence. Our main analyses, using accrual quality as a measure of audit quality, show that firms audited by specialists (vs. non-specialists) have relatively higher audit quality with extended auditor tenure, and that this relation is negatively moderated by auditors’ fee dependence on clients. These results are robust to sensitivity tests, and alternative proxies for audit quality such as the issuance of going concern opinions and the market’s response to quarterly earnings surprises.

Auditor Conservatism after Enron

SUMMARY: Corporate scandals and the resulting passage of the Sarbanes-Oxley Act (SOX) in 2002 significantly affected the auditing profession. The quality of financial statement audits was called into questioned and the media and regulators held audit firms responsible. Several studies found evidence of an increase in the issuance of going-concern opinions after the passage of SOX relative to earlier time periods (Geiger et al. 2005; Nogler 2008; Myers et al. 2008). Auditors, it appears, behave more conservatively when the profession is in the headlines. We replicate and extend this research to determine whether the heightened conservatism continues or whether it fades as time passes. We examine audit opinions issued 12 months or less prior to a bankruptcy filing for 565 companies from 2000–2008. Our findings indicate that while the proportion of going-concern modifications increases sharply in 2002–2003 compared to 2000–2001, it declines in the periods that follow, ultimately returning to its pre-Enron level.

Internal control deficiencies and the issuance of going concern opinions

This study examines whether internal control quality is associated with auditors’ going concern assessments following the implementation of the Sarbanes–Oxley Act of 2002 (SOX). Based on a sample of financially distressed firms that issued internal control reports under SOX Section 404 in 2004 and 2005, we find that firms with material internal control weaknesses are more likely to receive going concern audit opinions. Further analysis indicates that the positive association between disclosures of material weaknesses and auditors’ propensity to issue a going concern opinions is largely driven by a subset of firms that disclose company-level material weaknesses, suggesting that only the more severe type of internal control material weakness influences the going concern assessment. These findings add to our understanding of the audit opinion formation process and the potentially important impact of internal control quality on that process.