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Audit quality and the going-concern decision-making process: Spanish evidence

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  • Emiliano Ruiz-Barbadillo
  • Nieves Gomez-Aguilar
  • Cristina De Fuentes-Barbera
  • Maria Antonia Garcia-Benau

Abstract

In this study, we attempt empirically to investigate the relationship between audit quality and the probability that a financially distressed company would receive a going-concern opinion. Auditor decision-making in the presence of going-concern uncertainties may be characterized as a two-stage process. The first stage is the identification of a potential going-concern problem and the second stage is to determine whether the particular company should receive a qualified going-concern opinion. A sample of 1,199 non-financial Spanish company-years has been obtained from the database issued by the Stock Exchange National Commission for the fiscal years ending between December 1991 and December 2000. The results indicate that audit quality (measured by the auditor's level of independence and knowledge) affects the probability that a financially distressed company would receive a going-concern opinion. This probability is influenced not only by the auditor's ability to detect financial uncertainties, but also by the auditor's decision-making as to what type of opinion should be finally issued.

Suggested Citation

  • Emiliano Ruiz-Barbadillo & Nieves Gomez-Aguilar & Cristina De Fuentes-Barbera & Maria Antonia Garcia-Benau, 2004. "Audit quality and the going-concern decision-making process: Spanish evidence," European Accounting Review, Taylor & Francis Journals, vol. 13(4), pages 597-620.
    • Handle: RePEc:taf:euract:v:13:y:2004:i:4:p:597-620
    DOI: 10.1080/0963818042000216820
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    2. Wu, Chloe Yu-Hsuan & Hsu, Hwa-Hsien & Haslam, Jim, 2016. "Audit committees, non-audit services, and auditor reporting decisions prior to failure," The British Accounting Review, Elsevier, vol. 48(2), pages 240-256.
    3. Muñoz-Izquierdo, Nora & Segovia-Vargas, María Jesús & Camacho-Miñano, María-del-Mar & Pascual-Ezama, David, 2019. "Explaining the causes of business failure using audit report disclosures," Journal of Business Research, Elsevier, vol. 98(C), pages 403-414.
    4. 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.
    5. Pasiouras, Fotios & Gaganis, Chrysovalantis & Zopounidis, Constantin, 2007. "Multicriteria decision support methodologies for auditing decisions: The case of qualified audit reports in the UK," European Journal of Operational Research, Elsevier, vol. 180(3), pages 1317-1330, August.
    6. Ahmed A. Diab & Samir I. Abdelazim & Aref M. Eissa & Eid Mahmoud Abozaid & Mona Mohamed Elshaabany, 2021. "The Impact of Client Size and Financial Performance on Audit Opinion: Evidence from a Developing Market," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 10, January.
    7. Garcia-Blandon, Josep & Argiles, Josep Ma, 2015. "Audit firm tenure and independence: A comprehensive investigation of audit qualifications in Spain," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 24(C), pages 82-93.
    8. Carlo Regoliosi & Alessandro d’Eri, 2014. "“Good” corporate governance and the quality of internal auditing departments in Italian listed firms. An exploratory investigation in Italian listed firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(3), pages 891-920, August.
    9. Waymond Rodgers & Andrés Guiral & José A. Gonzalo, 2019. "Trusting/Distrusting Auditors’ Opinions," Sustainability, MDPI, vol. 11(6), pages 1-16, March.
    10. Nora Muñoz-Izquierdo & María-del-Mar Camacho-Miñano & María-Jesús Segovia-Vargas & David Pascual-Ezama, 2019. "Is the External Audit Report Useful for Bankruptcy Prediction? Evidence Using Artificial Intelligence," IJFS, MDPI, vol. 7(2), pages 1-23, April.
    11. Waymond Rodgers & Hiu Choy & Andrés Guiral, 2013. "Do Investors Value a Firm’s Commitment to Social Activities?," Journal of Business Ethics, Springer, vol. 114(4), pages 607-623, June.
    12. 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.
    13. García Blandón, Josep & Argilés Bosch, Josep Maria, 2013. "Audit firm tenure and qualified opinions: New evidence from Spain," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 16(2), pages 118-125.
    14. Gultom, Juan Barus & Murwaningsari, Etty & Umar, Haryono & Mayangsari, Sekar, 2021. "Reciprocal Use of Artificial Intelligence in Audit Assignments," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 11(1), pages 9-20.
    15. Peter Öhman & Einar Häckner & Dag Sörbom, 2012. "Client satisfaction and usefulness to external stakeholders from an audit client perspective," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(5), pages 477-499, May.

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