Costs associated with going-concern-modified audit opinions: an analysis of the Australian audit market

Carey, Peter J., Geiger, Marshall A., and O'Connell, Brendan T. (2008) Costs associated with going-concern-modified audit opinions: an analysis of the Australian audit market. Abacus, 44 (1). pp. 61-81.

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Abstract

This article examines the potential costs to Australian auditors and their clients from the issuance of first-time going-concern-modified audit opinions. We examine the population of Australian companies receiving a first-time going-concern-modified audit opinion during the period 1994–97 and a matched sample of financially distressed firms receiving a clean audit opinion. Results indicate that auditor switching is positively associated with receipt of a going-concern-modified opinion. However, we find no empirical evidence that there is a self-fulfilling prophecy of increased probability of company failure following the issuance of a going-concern-modified opinion for the Australian companies in our study. Our analyses of lost audit fees indicate that auditors issuing first-time going-concern-modified audit opinions lost proportionately more fees by losing clients (through switching or company failure) than firms not issuing a going-concern-modified opinion to financially stressed clients.

Item ID: 5687
Item Type: Article (Research - C1)
ISSN: 1467-6281
Keywords: audit reporting; bankruptcy; going-concern; qualification
Date Deposited: 07 Apr 2010 23:08
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1501 Accounting, Auditing and Accountability > 150102 Auditing and Accountability @ 100%
SEO Codes: 90 COMMERCIAL SERVICES AND TOURISM > 9002 Property, Business Support Services and Trade > 900299 Property, Business Support Services and Trade not elsewhere classified @ 100%
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