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The Auditor's Going-Concern Opinion Decision

Author

Listed:
  • Tae G. Ryu

    (Department of Accounting, Metropolitan State College of Denver, U.S.A.)

  • Chul-Young Roh

    (Department of Public Health, East Tennessee State University, U.S.A.)

Abstract

In this study, we expand on several previous studies related to the materiality judgments and the auditor's propensity to issue a going-concern opinion to financially troubled but non-bankrupt companies. We test the auditor's materiality thresholds by investigating whether there is any significant difference in accuracy among audit firms, especially between Big Six (Five) and non-Big Six (Five) audit firms. Binary logit regression is used to analyze 1,332 firms that were non-bankrupt but financially stressed between 1997 and 1999. This study finds that Big Six (Five) firms had higher materiality thresholds and were less likely to issue a going-concern opinion to their clients with financial problems than non-Big Six (Five) firms. Our results are consistent with previous research findings in that the materiality threshold levels are statistically different between the two groups of auditors. The results of this study provide a basis for comparing audit performance between Big Six (Five) and non-Big Six (Five) firms.

Suggested Citation

  • Tae G. Ryu & Chul-Young Roh, 2007. "The Auditor's Going-Concern Opinion Decision," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 6(2), pages 89-101, August.
    • Handle: RePEc:ijb:journl:v:6:y:2007:i:2:p:89-101
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    References listed on IDEAS

    as
    1. Pittman, Jeffrey A. & Fortin, Steve, 2004. "Auditor choice and the cost of debt capital for newly public firms," Journal of Accounting and Economics, Elsevier, vol. 37(1), pages 113-136, February.
    2. Messier, Wf, 1983. "The Effect Of Experience And Firm Type On Materiality Disclosure Judgments," Journal of Accounting Research, Wiley Blackwell, vol. 21(2), pages 611-618.
    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    4. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    5. Zmijewski, Me, 1984. "Methodological Issues Related To The Estimation Of Financial Distress Prediction Models," Journal of Accounting Research, Wiley Blackwell, vol. 22, pages 59-82.
    6. Chewning, G & Pany, K & Wheeler, S, 1989. "Auditor Reporting Decisions Involving Accounting Principle Changes - Some Evidence On Materiality Thresholds," Journal of Accounting Research, Wiley Blackwell, vol. 27(1), pages 78-96.
    7. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
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    Citations

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    Cited by:

    1. Maria Tsipouridou & Charalambos Spathis, 2014. "Audit opinion and earnings management: Evidence from Greece," Accounting Forum, Taylor & Francis Journals, vol. 38(1), pages 38-54, March.
    2. Desai, Vikram & Bucaro, Anthony C. & Kim, Joung W. & Srivastava, Rajendra & Desai, Renu, 2023. "Toward a better expert system for auditor going concern opinions using Bayesian network inflation factors," International Journal of Accounting Information Systems, Elsevier, vol. 49(C).
    3. Tsipouridou, Maria & Spathis, Charalambos, 2012. "Earnings management and the role of auditors in an unusual IFRS context: The case of Greece," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 21(1), pages 62-78.

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    More about this item

    Keywords

    going-concern opinion; auditing; auditor's propensity;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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