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Costs Associated With Going‐Concern‐Modified Audit Opinions: An Analysis of the Australian Audit Market
Author(s) -
CAREY PETER J.,
GEIGER MARSHALL A.,
O’CONNELL BRENDAN T.
Publication year - 2008
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/j.1467-6281.2007.00249.x
Subject(s) - audit , going concern , receipt , accounting , auditor's report , business , sample (material) , population , audit evidence , joint audit , actuarial science , internal audit , medicine , chemistry , environmental health , chromatography
This article examines the potential costs to Australian auditors and their clients from the issuance of first‐time going‐concern‐modified audit opinions. We examine the population of Australian companies receiving a first‐time going‐concern‐modified audit opinion during the period 1994–97 and a matched sample of financially distressed firms receiving a clean audit opinion. Results indicate that auditor switching is positively associated with receipt of a going‐concern‐modified opinion. However, we find no empirical evidence that there is a self‐fulfilling prophecy of increased probability of company failure following the issuance of a going‐concern‐modified opinion for the Australian companies in our study. Our analyses of lost audit fees indicate that auditors issuing first‐time going‐concern‐modified audit opinions lost proportionately more fees by losing clients (through switching or company failure) than firms not issuing a going‐concern‐modified opinion to financially stressed clients.