Managerial Overconfidence And Going-Concern Modified Audit Opinion Decisions

We examine how auditors perceive managerial overconfidence during audit reporting by testing the relationship between managerial overconfidence and the likelihood of issuing a first-time going-concern modified audit opinion to financially distressed firms. After controlling for the factors affecting auditor’s going-concern modified audit opinion decision, we find that the likelihood of issuing a first-time going-concern modified audit opinion is positively associated with managerial overconfidence, suggesting that auditors adversely value overconfident management in financially distressed firms and thus tend to issue a first-time going-concern modified audit opinion to them. We also find that the positive association above is reinforced with capital market uncertainty.

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Going Concern Opinion and Cost of Equity

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-50827 ◽

2014 ◽

Vol 33 (4) ◽

pp. 1-39 ◽

Cited By ~ 16

Author(s):

Keval Amin ◽

Jagan Krishnan ◽

Joon Sun Yang

Keyword(s):

Positive Association ◽

Equity Capital ◽

Cost Of Equity Capital ◽

Cost Of Equity ◽

Significant Positive Association ◽

Audit Opinion ◽

Going Concern ◽

Going Concern Opinion ◽

Distressed Firms ◽

The Cost

SUMMARY: Prior studies document a negative market reaction to going concern opinions. We extend this literature by focusing on the link between the going concern opinion and the cost of equity capital. Using two different samples (one comprising distressed firms and the other matched on propensity score), we document a significant positive association between the issuance of the going concern opinion and the firm's subsequent cost of equity capital. This result is robust to sensitivity tests using various subsamples, time periods, and multiple methods for computing the cost of equity capital. We also examine the association between changes in the audit opinion (going concern to clean opinion and vice versa) and subsequent changes in cost of equity. We find that the cost of equity increases between 3.3 percent and 5.7 percent for firms that receive a first-time going concern opinion. This evidence illuminates the relevance of going concern opinions and the value of the information embedded in them.

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Does a Manager Respond to a Going-Concern Audit Opinion with an Asymmetry in Gain and Loss?

Sustainability ◽

10.3390/su13084425 ◽

2021 ◽

Vol 13 (8) ◽

pp. 4425

Author(s):

Taewoo Kim

Keyword(s):

Time Series ◽

Accounting Conservatism ◽

Timely Manner ◽

Audit Opinion ◽

Going Concern ◽

Asymmetric Timeliness ◽

Gain And Loss ◽

Audit Opinions ◽

The Relationship

In this paper, I investigate the relationship between previous going-concern audit opinions and subsequent asymmetric timeliness in accounting. Using the time-series and price-based models and conservatism proxy, I find that firms with going-concern audit opinions subsequently report losses in a more timely manner than firms that did not receive going-concern audit opinions. Furthermore, I also find that firms exiting going-concern audit opinions are more likely to report losses rather than gains in a timely manner, compared to firms non-exiting from going-concern opinions. This study extends the prior research by exploring the association between going-concern opinions and accounting conservatism from the perspective of client firms—that is, how firms behave strategically and conservatively to bypass going-concern opinions, once the firms had received previous going-concern opinions.

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The effect of real activities manipulation on going concern audit opinions for financially distressed companies

Review of Accounting and Finance ◽

10.1108/raf-09-2016-0135 ◽

2018 ◽

Vol 17 (4) ◽

pp. 514-539

Author(s):

Hongkang Xu ◽

Mai Dao ◽

Jia Wu

Keyword(s):

Audit Quality ◽

Positive Association ◽

Content Type ◽

Going Concern ◽

Accruals Management ◽

Reporting Decisions ◽

Going Concern Opinion ◽

Distressed Firms ◽

Real Activities Manipulation ◽

Auditor Reporting

Purpose This study aims to examine the effect of real activities manipulation (RAM) on auditors’ decision of issuing going concern (GC) opinions for distressed companies. Design/methodology/approach This study estimates and examines three types of RAM: reduction of discretionary expenses, sales manipulation and overproduction. It investigates the effect of RAM on auditor reporting conservatism by including the three measures of RAM methods in logistic regressions that explain the issuance of going concern opinions. The authors perform the analysis specifically on distressed firms for 2004-2013 period. Findings This study finds a significant and positive association between RAM and the likelihood of receiving going concern opinion in the financial distressed firm sample, suggesting that client’s abnormal business activity affects the auditor reporting conservatism. Practical implications This study provides evidence that auditors make going concern reporting decisions in consideration of the client’s abnormal operating decisions and management’s opportunism. Originality/value Recent literature argues that auditors have little recourse other than to resign if a client uses RAM to impact earnings or the financial statements, and hence the enhanced audit quality in the post-SOX period is due to the shift from using accruals management to RAM (Cohen et al., 2008; Chi et al., 2011; Kim and Park, 2014). The evidence provided in this study indicates that auditors report more conservatively (rather than simply resign) in response to the aggressive RAM.

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Pengaruh Rasio Profitabilitas, Rasio Likuiditas, Pertumbuhan Perusahaan Terhadap Opini Audit Going Concern

Jurnal Akuntansi Maranatha ◽

10.28932/jam.v13i2.3901 ◽

2021 ◽

Vol 13 (2) ◽

pp. 283-299

Author(s):

Kimberli Kimberli ◽

Budi Kurniawan

Keyword(s):

Stock Exchange ◽

Secondary Data ◽

Financial Statements ◽

Audit Opinion ◽

Going Concern ◽

Analysis Technique ◽

Going Concern Opinion ◽

Company Growth ◽

The Relationship ◽

Profitability Ratios

Abstract The problems that will be discussed in this journal are regarding the relationship between Profitability Ratios, Liquidity Ratios and Company Growth on Audit Delay. The research method used in this study uses secondary data. The population in this study is all Real Estate companies and the Property sub-sector registered on the BEI which are listed on the Indonesia Stock Exchange in 2017, 2018, 2019 and 2020. The sampling method in this study is purposive sampling. The criteria for companies that are sampled are companies that publish audited financial statements for four consecutive years and use the rupiah currency, so that the total number of samples in this study is 165 data. The independent variables in this study are Profitability Ratios, Liquidity Ratios and Company Growth. The dependent variable in this study is audit delay. The data analysis technique used is the Logistics Regression Test with the use of Software Eviews 10. The results of the analysis show that profitability has no significant effect on going concern audit opinion. Meanwhile, company growth and liquidity have no effect on going concern audit opinion. Keywords: Going Concern Opinion, Profitability, Liquidity, and Company Growth

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The Auditor's Going-Concern Opinion as a Communication of Risk

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-50002 ◽

2011 ◽

Vol 30 (2) ◽

pp. 77-102 ◽

Cited By ~ 49

Author(s):

Allen D. Blay ◽

Marshall A. Geiger ◽

David S. North

Keyword(s):

Financial Distress ◽

Balance Sheet ◽

Control Sample ◽

Data Availability ◽

Market Valuation ◽

Audit Opinion ◽

Going Concern ◽

Income Statement ◽

Going Concern Opinion ◽

Distressed Firms

SUMMARY In this study, we examine the proposition that the auditor's going-concern modified opinion is a valuable risk communication to the equity market that results in a shift of the market's perception of financially distressed firms. Specifically, our analyses reveal that the market valuation is significantly altered from a focus on both the income statement and balance sheet to a balance sheet-only focus in the year a company receives a first-time going-concern modified opinion. These results hold even after controlling for several common measures of financial distress and when examining a larger control sample of distressed firms. We also document that the market devalues a company's inventory and places increased weight on cash, receivables, and long-term assets and liabilities as a result of the auditor's modification. This indicates that the going-concern modification provides incremental information specifically related to abandonment or adaptation risk. Our results provide evidence that the market interprets the going-concern modified audit opinion as an important communication of risk that results in a substantial shift in the structure of the market valuation for distressed firms. Data Availability: All data are available from public sources. JEL Classifications: M41.

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GOING CONCERN COMPANY AND ITS RELATION TO SUSTAINABILITY REPORT DISCLOSURE: EVIDENCE FROM SOEs IN INDONESIA

International Journal of Economics Business and Accounting Research (IJEBAR) ◽

10.29040/ijebar.v3i01.376 ◽

2019 ◽

Vol 3 (01) ◽

pp. 12

Author(s):

Saktiana Rizki Endiramurti ◽

Achmad Budiman Rosadi ◽

Agung Nur Probohudono

Keyword(s):

Regression Analysis ◽

Panel Data ◽

Sustainability Reporting ◽

Firm Characteristics ◽

Statistical Tool ◽

Audit Opinion ◽

Going Concern ◽

Going Concern Opinion ◽

The Relationship ◽

Sustainability Report

This study refers to the issue that is happening in Indonesian State-Owned Enterprises (SOEs), especially in the case of going concern. The purpose is to provide empirical evidence about the relationship between going concern companies and corporate characteristics on the disclosure of sustainability report. The sample used is a non-financial SOEs company in Indonesia, consisting of 54 companies during the period 2014-2016. This study employs regression analysis of panel data with statistical tool Eviews version 9.0. The results support three out of four research hypotheses, in which going concern audit opinion and firm characteristics assessed through firm size and age had significant influence on sustainability report disclosure. This indicates that the larger and longer the company stands, the company will present the sustainability reporting more fully. The more complete presentation of sustainability reporting becomes one of the important factors for the auditor in determining going concern opinion in its report.

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The Influence of Previous Audit Opinion, Audit Tenure and Liquidity toward Going Concern Opinion in Manufacturing Companies for the Period of 2015-2017

JAAF (Journal of Applied Accounting and Finance) ◽

10.33021/jaaf.v3i1.674 ◽

2019 ◽

Vol 3 (1) ◽

pp. 1

Author(s):

Cindy Saputra Kuswara ◽

Ery Yanto

Keyword(s):

Logistic Regression ◽

Regression Analysis ◽

Logistic Regression Analysis ◽

Significant Influence ◽

Manufacturing Companies ◽

Analysis Method ◽

Audit Opinion ◽

Going Concern ◽

Going Concern Opinion ◽

The Relationship

Going Concern Opinion issued by auditor when there is doubt of a company’s ability to continue as going concern. This research have the objective to determine the relationship between Previous Audit Opinion, Audit Tenure and Liquidity with Going Concern Opinion in manufacturing companies listed in IDX form years 2015 until 2017. The population of this research is 156 with total of sample are 37 manufacturing companies. The research of data using descriptive statistic and logistic regression analysis method. The result shows that Previous Audit Opinion and Liquidity have significant influence toward Going Concern Opinion and Audit Tenure does not have significant influence toward Going Concern Opinion.

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FACTORS AFFECTING THE FINANCIAL AND NON-FINANCIAL RATIOS ON GOING-CONCERN AUDIT OPINION

Assets Jurnal Akuntansi dan Pendidikan ◽

10.25273/jap.v10i2.7024 ◽

2021 ◽

Vol 10 (2) ◽

pp. 87

Author(s):

Icuk Rangga Bawono ◽

Aan Kanivia ◽

Oman Rusmana

Keyword(s):

Real Estate ◽

Audit Quality ◽

Stock Exchange ◽

Financial Ratios ◽

Factors Affecting ◽

Audit Opinion ◽

Going Concern ◽

Opinion Shopping ◽

Activity Ratios ◽

Ongoing Concern

ABSTRACTThis study aims to determine the factors affecting the financial and non-financial ratios' ongoing concern audit opinion. Data were obtained from 31 property and real estate sub-sector companies listed on the Indonesia Stock Exchange (IDX) from 2014-2017, comprising 124 samples. The data collected were analyzed using the logistic regression analysis method. This result showed that the activity ratios, liquidity, audit quality, previous year's audit opinion, and shopping could affect the provision of a company's going concern audit opinion. Meanwhile, the ratio of profitability, solvency, and company size has a more negligible effect on the going-concern audit opinion.ABSTRAKPenelitian ini dilaksanakan dengan tujuan untuk mengetahui pengaruh rasio keuangan dan nonkeuangan terhadap opini audit going concern. Penelitian ini mengambil sampel 31 perusahaan subsektor property dan real estate yang terdaftar di Bursa Efek Indonesia (BEI) pada periode tahun 2014-2017 dengan total 124 sampel. Pengujian hipotesis menggunakan metode analisis regresi logistik. Penelitian ini menunjukkan bukti rasio aktivitas, likuiditas, kualitas audit, opini audit tahun sebelumnya, dan opinion shopping dapat memengaruhi pemberian opini audit going concern perusahaan. Sementara rasio profitabilitas, solvabilitas, dan ukuran perusahaan kurang memberikan efek terhadap pemberian opini audit going concern perusahaan.

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A Study of the Relationship between a Going Concern Opinion and Its Financial Distress Metrics

Journal of Emerging Technologies in Accounting ◽

10.2308/jeta-51933 ◽

2017 ◽

Vol 14 (2) ◽

pp. 17-28 ◽

Cited By ~ 3

Author(s):

Vikram Desai ◽

Joung W. Kim ◽

Rajendra P. Srivastava ◽

Renu V. Desai

Keyword(s):

Search Engine ◽

Financial Distress ◽

Primary Objective ◽

Financial Viability ◽

Going Concern ◽

Going Concern Opinion ◽

One Year ◽

The Impact ◽

First Time ◽

The Relationship

ABSTRACT The primary objective of this paper is to employ search engine technology to investigate the relationship between first-time going concern opinions (GCOs) and the financial viability of the GCO recipients using delisting as a criterion rather than bankruptcy. The paper also investigates the impact of client distress factors on auditors' propensity to issue GCOs. The search engine enables us to examine the entire population of 10-K filings from 1995 to 2015 and also to obtain delisting data, which are not readily available in commercial databases. Contrary to prior research, we find that the survival rate of first-time GCOs is much lower when we use delisting as a measure of financial viability. Around 26 percent of the companies that receive their first GCOs are delisted within a period of one year of the audit opinion date, and 50 percent of the companies that receive their first GCOs are delisted within a period of three years. The bankruptcy rate of first-time GCO companies within one year is around 9 percent. Such evidence may prove useful to the PCAOB's effort to expeditiously assess the intended benefit of GCOs. In addition, we find that the propensity of auditors to issue GCOs varies for each distress factor.

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Financially Distressed Firms: Environmental, Social, and Governance Reporting in Indonesia

Sustainability ◽

10.3390/su131810156 ◽

2021 ◽

Vol 13 (18) ◽

pp. 10156

Author(s):

Iman Harymawan ◽

Fajar Kristanto Gautama Putra ◽

Bayu Arie Fianto ◽

Wan Adibah Wan Ismail

Keyword(s):

Financial Distress ◽

General Information ◽

Disclosure Quality ◽

Exact Matching ◽

Coarsened Exact Matching ◽

Distressed Firms ◽

Financially Distressed ◽

Two Stages ◽

Rolling Windows ◽

The Relationship

This study examines the relationship between financial distress and environmental, social, and governance (ESG) disclosure. We hypothesize that financially distressed firms are tempted to enhance ESG disclosure as it provides higher performance in terms of financial and market perspectives. ESG disclosure needs substantial resources, which financially distressed firms may not be able to provide. In Indonesian settings, we find that financially distressed firms have lower ESG disclosure quality than non-distressed firms. Our results are robust due to lagged variable, Heckman’s two stages, and coarsened exact matching regression showing consistent results. Furthermore, our results are consistent with three years of rolling windows of financial distress and all sections of ESG reporting, except the general information section. This study extends the scope of prior studies by focusing on firms’ eagerness to provide higher quality ESG disclosure, particularly distressed firms.

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