Going concern audit opinion: reducing information asymmetry

As management and stakeholder decisions are shaped upon information obtained from accounting, assurance is vital for ensuring the reliability of economic information systems. Considering the role of auditing as a governance mechanism, this chapter seeks to assess the extent to which going concern audit opinion (GCAO) helps in reducing information asymmetry. Existing literature indicates insufficient evidence concerning accounting behaviour in emerging economies and the relationship between earnings management and GCAO. Furthermore, empirical findings indicate that Big4 are more incentivised to issue accurate audit reports as opposed to local auditors. While controlling for auditor and auditee features, our study detects a positive albeit insignificant relationship between earnings management and going concern modifications. Additionally, by inspecting type I errors (issuing GCAOs to financially viable entities) and type II errors (not issuing GCAOs to stressed entities), our results show a lower information asymmetry for non-Big4 auditors as regards entities with elevated bankruptcy scores.