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

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  • Yihan Guo
  • Deborah Delaney
  • Ammad Ahmed

Abstract

A 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.

Suggested Citation

  • Yihan Guo & Deborah Delaney & Ammad Ahmed, 2020. "Is an Auditor's Propensity to Issue Going Concern Opinions a Valid Measure of Audit Quality?," Australian Accounting Review, CPA Australia, vol. 30(2), pages 144-153, June.
    • Handle: RePEc:bla:ausact:v:30:y:2020:i:2:p:144-153
    DOI: 10.1111/auar.12300
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    References listed on IDEAS

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    Cited by:

    1. Sarowar Hossain & Jenny Jing Wang, 2023. "Abnormal audit fees and audit quality: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 596-624, August.
    2. Michael Bradbury & Bryan Howieson, 2020. "Editorial," Australian Accounting Review, CPA Australia, vol. 30(2), pages 83-84, June.
    3. Yunus Anugerah Hulu & Nagian Toni & Wilsa Road Betterment Sitepu, 2022. "The Effect of Audit Quality, Financial Condition and Earnings Management on the Going Concern Audit Opinion with Corporate Mechanism as a Moderating Variable," Oblik i finansi, Institute of Accounting and Finance, issue 3, pages 119-128, September.

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