IDEAS home Printed from https://ideas.repec.org/a/kap/jbuset/v149y2018i4d10.1007_s10551-016-3045-6.html
   My bibliography  Save this article

The Impact of Religion on the Going Concern Reporting Decisions of Local Audit Offices

Author

Listed:
  • Thomas C. Omer

    (University of Nebraska–Lincoln)

  • Nathan Y. Sharp

    (Texas A&M University)

  • Dechun Wang

    (Texas A&M University)

Abstract

We extend research on the effects of local audit office characteristics on audit quality by investigating whether audit offices in highly religious U.S. Metropolitan Statistical Areas (MSAs) exhibit going concern decisions that reflect heightened professional skepticism relative to audit offices in less religious MSAs. Prior research links religiosity to risk aversion and ethical development and suggests audit practice offices in more religious MSAs are more likely to issue going concern opinions because they will assess the effects of mitigating factors in a more skeptical manner. Our results indicate that audit practice offices located in highly religious MSAs are more likely to issue going concern audit opinions, consistent with a more skeptical assessment of mitigating factors. Additional tests provide direct evidence consistent with the argument that these audit offices are more risk averse in issuing going concern opinions. Our findings are relevant to auditors, audit clients, researchers, and regulators.

Suggested Citation

  • Thomas C. Omer & Nathan Y. Sharp & Dechun Wang, 2018. "The Impact of Religion on the Going Concern Reporting Decisions of Local Audit Offices," Journal of Business Ethics, Springer, vol. 149(4), pages 811-831, June.
    • Handle: RePEc:kap:jbuset:v:149:y:2018:i:4:d:10.1007_s10551-016-3045-6
    DOI: 10.1007/s10551-016-3045-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10551-016-3045-6
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10551-016-3045-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Butler, Marty & Leone, Andrew J. & Willenborg, Michael, 2004. "An empirical analysis of auditor reporting and its association with abnormal accruals," Journal of Accounting and Economics, Elsevier, vol. 37(2), pages 139-165, June.
    2. Chee‐Yeow Lim & Hun‐Tong Tan, 2008. "Non‐audit Service Fees and Audit Quality: The Impact of Auditor Specialization," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 199-246, March.
    3. Mutchler, JF & Hopwood, W & McKeown, JM, 1997. "The influence of contrary information and mitigating factors on audit opinion decisions on bankrupt companies," Journal of Accounting Research, Wiley Blackwell, vol. 35(2), pages 295-310.
    4. K. Parboteeah & Martin Hoegl & John Cullen, 2008. "Ethics and Religion: An Empirical Test of a Multidimensional Model," Journal of Business Ethics, Springer, vol. 80(2), pages 387-398, June.
    5. Mark L. DeFond & K. Raghunandan & K.R. Subramanyam, 2002. "Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1247-1274, September.
    6. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    7. Hilary, Gilles & Hui, Kai Wai, 2009. "Does religion matter in corporate decision making in America?," Journal of Financial Economics, Elsevier, vol. 93(3), pages 455-473, September.
    8. Mutchler, Jf, 1985. "A Multivariate-Analysis Of The Auditors Going-Concern Opinion Decision," Journal of Accounting Research, Wiley Blackwell, vol. 23(2), pages 668-682.
    9. 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.
    10. 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.
    11. Scott D. Dyreng & William J. Mayew & Christopher D. Williams, 2012. "Religious Social Norms and Corporate Financial Reporting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 39(7-8), pages 845-875, September.
    12. Linda Myers & Jaime Schmidt & Michael Wilkins, 2014. "An investigation of recent changes in going concern reporting decisions among Big N and non-Big N auditors," Review of Quantitative Finance and Accounting, Springer, vol. 43(1), pages 155-172, July.
    13. Joseph Weber & Michael Willenborg, 2003. "Do Expert Informational Intermediaries Add Value? Evidence from Auditors in Microcap Initial Public Offerings," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 681-720, September.
    14. Geiger, Marshall A. & Raghunandan, K. & Rama, Dasaratha V., 2006. "Auditor decision-making in different litigation environments: The Private Securities Litigation Reform Act, audit reports and audit firm size," Journal of Accounting and Public Policy, Elsevier, vol. 25(3), pages 332-353.
    15. DeFond, Mark L. & Lennox, Clive S., 2011. "The effect of SOX on small auditor exits and audit quality," Journal of Accounting and Economics, Elsevier, vol. 52(1), pages 21-40, June.
    16. Lennox, Clive, 2000. "Do companies successfully engage in opinion-shopping? Evidence from the UK," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 321-337, June.
    17. Kenneth J. Reichelt & Dechun Wang, 2010. "National and Office‐Specific Measures of Auditor Industry Expertise and Effects on Audit Quality," Journal of Accounting Research, Wiley Blackwell, vol. 48(3), pages 647-686, June.
    18. Lord, Alan T. & Todd DeZoort, F., 2001. "The impact of commitment and moral reasoning on auditors' responses to social influence pressure," Accounting, Organizations and Society, Elsevier, vol. 26(3), pages 215-235, April.
    19. Allen D. Blay & Marshall A. Geiger, 2013. "Auditor Fees and Auditor Independence: Evidence from Going Concern Reporting Decisions," Contemporary Accounting Research, John Wiley & Sons, vol. 30(2), pages 579-606, June.
    20. Waymond Rodgers & Andrés Guiral & José Gonzalo, 2009. "Different Pathways that Suggest Whether Auditors’ Going Concern Opinions are Ethically Based," Journal of Business Ethics, Springer, vol. 86(3), pages 347-361, May.
    21. Andrés Guiral & Waymond Rodgers & Emiliano Ruiz & José Gonzalo, 2010. "Ethical Dilemmas in Auditing: Dishonesty or Unintentional Bias?," Journal of Business Ethics, Springer, vol. 91(1), pages 151-166, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alabbad, Amal & Al Saleem, Jafar & Kabir Hassan, M., 2022. "Does religious diversity play roles in corporate environmental decisions?," Journal of Business Research, Elsevier, vol. 148(C), pages 489-504.
    2. Pashkus V.Y. & Pashkus N. A., 2015. "Breakthrough Positioning Strategy: Usage At The Enterprise Level Russian Pharmaceutical Cluster," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 2, May.
    3. Nazia Adeel & Chris Patel & Nonna Martinov-Bennie & Sammy Xiaoyan Ying, 2022. "Islamic Religiosity and Auditors’ Judgements: Evidence from Pakistan," Journal of Business Ethics, Springer, vol. 179(2), pages 551-572, August.
    4. Arianna Spina Pinello & Ara Volkan & Mark Arnone & Jamie Lancellot & Lana Luckey, 2022. "Professional Skepticism: Standardsetters’ Responsiveness To Stakeholder Comment Letters," Accounting & Taxation, The Institute for Business and Finance Research, vol. 14(1), pages 57-74.
    5. Ervin L. Black & F. Greg Burton & Joshua K. Cieslewicz, 2022. "Improving Ethics: Extending the Theory of Planned Behavior to Include Moral Disengagement," Journal of Business Ethics, Springer, vol. 181(4), pages 945-978, December.
    6. Yu Chen & Xiaoyan Chu & Jung Chul Park & Jared S. Soileau, 2022. "CEO religious university affiliation and financial reporting quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 417-468, March.
    7. Hsieh, Wen-Liang G. & Wu, Wei-Shao & Tu, Anthony H., 2022. "Religiosity and sovereign credit quality," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 84-103.
    8. Kanellos S. Toudas & Jinxiu Zhu, 2023. "The Effect of Religion in European Financial Statement Disclosures: A Real Earnings’ Management Case," JRFM, MDPI, vol. 16(11), pages 1-24, October.
    9. Ahsan Habib & Mabel D' Costa & Ahmed Khamis Al‐Hadi, 2023. "Consequences of local social norms: A review of the literature in accounting, finance, and corporate governance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 3-45, March.
    10. Shahid, Ahmad Usman & Patel, Chris & Pan, Peipei, 2022. "Corporate social responsibility, intrinsic religiosity, and investment decisions," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).
    11. Saeid Homayoun & Vahid Molla Imeny & Mahdi Salehi & Mahdi Moradi & Simon Norton, 2022. "Which Is More Concerning for Accounting Professionals-Personal Risk or Professional Risk?," Sustainability, MDPI, vol. 14(22), pages 1-13, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    2. Geiger, Marshall A. & Basioudis, Ilias G. & DeLange, Paul, 2022. "The effect of non-audit fees and industry specialization on the prevalence and accuracy of auditor’s going-concern reporting decisions," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    3. Elizabeth Gutierrez & Jake Krupa & Miguel Minutti-Meza & Maria Vulcheva, 2020. "Do going concern opinions provide incremental information to predict corporate defaults?," Review of Accounting Studies, Springer, vol. 25(4), pages 1344-1381, December.
    4. Nathan R. Berglund, 2020. "Do Client Bankruptcies Preceded by Clean Audit Opinions Damage Auditor Reputation?," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1914-1951, September.
    5. Jian Cao & Feng Chen & Julia L. Higgs, 2016. "Late for a very important date: financial reporting and audit implications of late 10-K filings," Review of Accounting Studies, Springer, vol. 21(2), pages 633-671, June.
    6. Mei Feng & Chan Li, 2014. "Are Auditors Professionally Skeptical? Evidence from Auditors’ Going‐Concern Opinions and Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 52(5), pages 1061-1085, December.
    7. Xingqiang Du & Wei Jian & Shaojuan Lai & Yingjie Du & Hongmei Pei, 2015. "Does Religion Mitigate Earnings Management? Evidence from China," Journal of Business Ethics, Springer, vol. 131(3), pages 699-749, October.
    8. Kaplan, Steven E. & Williams, David D., 2012. "The changing relationship between audit firm size and going concern reporting," Accounting, Organizations and Society, Elsevier, vol. 37(5), pages 322-341.
    9. Jian Cao & Thomas R. Kubick & Adi N. S. Masli, 2017. "Do corporate payouts signal going-concern risk for auditors? Evidence from audit reports for companies in financial distress," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 599-631, October.
    10. Xingqiang Du, 2019. "Does CEO-Auditor Dialect Sharing Impair Pre-IPO Audit Quality? Evidence from China," Journal of Business Ethics, Springer, vol. 156(3), pages 699-735, May.
    11. Liang Tan & Santhosh Ramalingegowda & Yong Yu, 2022. "Third-Party Consequences of Changes in Managerial Fiduciary Duties: The Case of Auditors’ Going Concern Opinions," Management Science, INFORMS, vol. 68(2), pages 1556-1572, February.
    12. Chen, Peter F. & He, Shaohua & Ma, Zhiming & Stice, Derrald, 2016. "The information role of audit opinions in debt contracting," Journal of Accounting and Economics, Elsevier, vol. 61(1), pages 121-144.
    13. Gómez Aguilar, Nieves & Biedma López, Estíbaliz & Ruiz Barbadillo, Emiliano, 2018. "El efecto de la rotación de socio en la calidad de la auditoría," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(1), pages 7-18.
    14. Tsipouridou, Maria & Spathis, Charalambos, 2014. "Audit opinion and earnings management: Evidence from Greece," Accounting forum, Elsevier, vol. 38(1), pages 38-54.
    15. Xingqiang Du & Wei Jian & Quan Zeng & Yingying Chang, 2018. "Do Auditors Applaud Corporate Environmental Performance? Evidence from China," Journal of Business Ethics, Springer, vol. 151(4), pages 1049-1080, September.
    16. Callen, Jeffrey L. & Fang, Xiaohua & Zhang, Wenjun, 2020. "Protection of proprietary information and financial reporting opacity: Evidence from a natural experiment," Journal of Corporate Finance, Elsevier, vol. 64(C).
    17. Keval Amin & John Daniel Eshleman & Peng Guo, 2021. "Investor Sentiment, Misstatements, and Auditor Behavior," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 483-517, March.
    18. Feng Guo & Chenxi Lin & Adi Masli & Michael S. Wilkins, 2021. "Auditor Responses to Shareholder Activism," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 63-95, March.
    19. Bugeja, Martin, 2011. "Takeover premiums and the perception of auditor independence and reputation," The British Accounting Review, Elsevier, vol. 43(4), pages 278-293.
    20. Ziqi Gao & Leye Li & Louise Yi Lu, 2021. "Social Capital and Managers’ Use of Corporate Resources," Journal of Business Ethics, Springer, vol. 168(3), pages 593-613, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jbuset:v:149:y:2018:i:4:d:10.1007_s10551-016-3045-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.