Information Transfer of Bankruptcy Announcements: Examining the Impact of Auditor Opinions

2019 ◽  
Vol 34 (1) ◽  
pp. 45-66
Author(s):  
Jeffrey R. Casterella ◽  
Rosemond Desir ◽  
Matthew A. Stallings ◽  
James S. Wainberg
Keyword(s):  
Capital Market ◽  
Stock Price ◽  
Information Transfer ◽  
Data Availability ◽  
Going Concern ◽  
Market Participants ◽  
Audit Firms ◽  
Peer Firms ◽  
Going Concern Opinion ◽  
The Impact

SYNOPSIS Auditing standards require auditors to consider whether there is “substantial doubt” that their client will remain a going concern and to, accordingly, modify the audit report (PCAOB AS 2415). Prior research reports larger negative excess returns for bankrupt firms when bankruptcies occur without a prior going concern opinion. We investigate whether such audit opinions can also have an impact on industry peer firms. We find that peer firms experience significantly larger negative stock price drops when rivals' bankruptcies are not preceded by a going concern opinion. In addition, we find evidence of incremental stock price declines for peer firms when Big N audit firms fail to issue a going concern opinion. These findings should be of significant interest to regulators, auditors, and capital market participants as they serve to enhance our current understanding of the importance of going concern opinions for the share pricing of industry peer firms. JEL Classifications: G14; G33; M4; M42. Data Availability: All data are from public sources identified in the manuscript.

scholarly journals PENGARUH PENERAPAN GOOD CORPORATE GOVERNANCE, OPINION SHOPPING, KUALITAS AUDIT, DAN AUDIT CLIENT TENURE TERHADAP PENERIMAAN OPINI AUDIT GOING CONCERN AUDITING

2019 ◽  
Vol 2 (2) ◽  
Author(s):  
Panggah Wira Angkasa ◽  
Dewi Indriasih ◽  
Baihaqi Fanani
Keyword(s):  
Logistic Regression ◽  
Research Result ◽  
Institutional Ownership ◽  
Audit Opinion ◽  
Quality Audit ◽  
Going Concern ◽  
Opinion Shopping ◽  
Going Concern Opinion ◽  
Infrastructure Services ◽  
The Impact

The Impact of Good Governance, Opinion Shopping, Quality Audit and Audit Client Tenure Application towards Going Concern Opinion Audit Acceptance (Empirical Studies on Infrastructure Services Company, Utility, and Transportation which Registered at Indonesian Stock Exchange (ISE) during 2013 – 2017 Period). Essay. Tegal: Economic & Business Faculty, Pancasakti University Tegal. 2018. The aim of this research is to finding out the impact of institutional ownership, independent commissioner, committee audit, opinion shopping, quality audit, audit client tenure towards going concern’s opinion audit on infrastructure services company, utility, and transportation which registered at ISE during 2013 – 2017 period. The population in this research are infrastructure services company, utility, and transportation which registered at ISE during 2013 – 2017 period and the sample determination by using purposive sampling method, so within the result obtained 15 company’s samples. The data analysis method used is logistic regression analysis. Based on logistic regression analytic, the research result concluded that institutional ownership (0,109), audit committee (0,429), opinion shopping (0,607), and quality audit (0,998) are not affecting the going concern opinion audit. Meanwhile, the independent commissioner (0,006), and audit client tenure (0,004) are affecting the going concern opinion audit. Keywords: going concern, opinion audit, institutional ownership, independent commissioner, committee audit, opinion shopping, quality audit, audit client tenure

UKURAN KANTOR AKUNTAN PUBLIK, DISCRETIONARY ACCRUALS DAN OPINI AUDIT GOING CONCERN

2019 ◽  
Vol 15 (1) ◽  
pp. 11
Author(s):  
Ravaela Amba Masiku ◽  
Christine Novita Dewi
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Discretionary Accruals ◽  
Audit Firm ◽  
Going Concern ◽  
Discretionary Accrual ◽  
Audit Firms ◽  
Going Concern Opinion ◽  
Positive Effect

The purpose of this study is to examine auditor’s concervatism in term of their reaction to client’s earnings management behavior and their limitations to issue the going concern opinions (GCO). The population of this study consists of 672 observations from 69 companies are listed on the Indonesia Stock Exchange (BEI) during 2012-2017. The author used the modified Jones model to measure discretionary accruals as a proxy of earnings management. The results of this study indicate that size of audit firm has a positive effect to discretionary accrual. Companies that have been audited by the Big4 tend to apply discretionary accrual in their financial reporting than companies audited by Non-Big4. Further, to strenghten the first hypothesis, we examine the effect of discretionary accruals and going concern opinion on companies that audited by audit firms Big4 lower than companies that audited by audit firms Non-Big4. We found that the result is consistent with the first hypothesis. Keywords : auditor reputation, discretionary accruals, going concern opinion, audit firm  ABSTRAK Tujuan dari penelitian ini adalah untuk menguji konservatisme auditor dalam hal reaksi auditor terhadap akrual diskresioner yang dilakukan oleh perusahaan dan keterbatasan auditor untuk menerbitkan opini Going Concern (GC). Populasi penelitian terdiri dari 672 pengamatan dari 69 perusahaan yang terdaftar di Bursa Efek Indonesia (BEI) selama tahun 2012-2017. Penulis menggunakan model modifikasi Jones untuk mengukur akrual diskresioner sebagai proksi manajemen laba. Hasil dari penelitian ini menjelaskan bahwa ukuran kantor akuntan publik berpengaruh positif terhadap akrual diskresioner, hal tersebut diperkuat dengan pengaruh akrual diskresioner dan opini audit going concern yang diaudit oleh kantor akuntan publik Big4 lebih rendah dari perusahaan yang tidak diaudit oleh kantor akuntan publik Non-Big4. Kata kunci : reputasi auditor, akrual diskresioner, opini audit going concern, kantor akuntan publik

The Mirror of Malaysia Real Estate Investment Trust Stock Return in the Short-Run Dynamics

2021 ◽  
Vol 12 (3) ◽  
pp. 547-562
Author(s):  
William Choo Keng Soon Et.al
Keyword(s):  
Real Estate ◽  
Crude Oil ◽  
Capital Market ◽  
Stock Price ◽  
Trading Volume ◽  
Stock Return ◽  
Financial System ◽  
Empirical Finding ◽  
Short Run ◽  
The Impact

The formation of Islamic capital market under the subcomponent of Islamic financial system scratch a milestones development of Islamic finance in Malaysia. The Islamic capital market operates in mirror with convention capital market in expending, deepening and broadening Malaysia financial system. Malaysia is one of the REIT markets that value both the Islamic and conventional practices, such flexibility makes the attract not only to the local investor but also Islamic investors and foreign investor. The major source that generates income for REIT is the rental of the commercial real estate invested and hold as portfolio by the REIT management company. Furthermore, Malaysia REIT is known to be defensive stocks which consist of cyclic income producing assets that has some potential of asset appreciation. On the other hand, it witnessed by the moderation of Malaysia government bond yields created a lower pressure on the REIT stock price and analyst’s report highlighted the uncertainties on global crude oil prices and inflation is main concerned to REIT investors. In addition, the revision of 2019 tax system in Malaysia furnished a long run affected the dividend payout and volatility of REIT stock price. Therefore, this impact on the REIT stock liquidity and trading volume experiencing anil liquid trading. Therefore, the impact of external forces towards the mirror of two type of Malaysia REITs is significant to the investors, policy makers and government to outline the short-run relationship and facilitate future growth. The Vector auto regression model, granger causality and variance decomposition employed in this study to analyze the mirror of two types Malaysia REIT stock return. The empirical finding shows that the variability of dividend yield is vital explanatory variables to explain the both type of REIT stock return in Malaysia followed by interest rate for Islamic REIT stock return. The mirror of conventional REIT further implicated that trading volume and global crude oil price are useful to forecasting the changes in the stock return. Nutshell, this study provides a discussion of Malaysia REIT stock return behavior and it should be given necessary attention by researchers in ensuring the newly develop Islamic REIT are competitive and stability as the conventional REIT.

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

2011 ◽  
Vol 30 (2) ◽  
pp. 77-102 ◽  
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.

The Impact of PCAOB AS5 and the Economic Recession on Client Portfolio Characteristics of the Big 4 Audit Firms

2013 ◽  
Vol 32 (4) ◽  
pp. 95-127 ◽  
Author(s):  
Joseph H. Schroeder ◽  
Chris E. Hogan
Keyword(s):  
Financial Risk ◽  
Economic Recession ◽  
Data Availability ◽  
Publicly Traded ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Risk Characteristics ◽  
The Impact

SUMMARY We examine the impact of PCAOB Auditing Standard No. 5 (AS5) and the economic recession on risk characteristics and degree of auditor/client misalignment in the publicly traded client portfolios of Big 4 firms. AS5 and the economic recession both likely resulted in an increase in audit firm personnel capacity as well as a decline in current and future revenue prospects, leading to concerns that the Big 4 firms may pursue clients that present greater risk to the portfolio. We find that the overall portfolio in 2009 presents greater financial risk, attributable to the impact of the recession on continuing clients. A net decrease in audit and auditor business risks is also attributable to continuing clients over this period, as increases for new clients are offset by reductions due to departing clients. Overall, the results, which should be of interest to regulators, indicate that Big 4 firms continued to balance their portfolio with risk in mind. Data Availability: Data are publicly available from sources identified in the paper.

scholarly journals The Impact of Bankruptcy Prediction, Company’s Financial Condition, Previous Year Audit Opinion, Firm Size and Audit Tenure Towards Auditor’s Going Concern Opinion

2016 ◽  
Vol 1 (1) ◽  
pp. 51-58
Author(s):  
Lisa Cellica ◽  
Ratnawati Kurnia
Keyword(s):  
Firm Size ◽  
Stock Exchange ◽  
Secondary Data ◽  
Jel Classification ◽  
Bankruptcy Prediction ◽  
Audit Opinion ◽  
Going Concern ◽  
Financial Condition ◽  
Going Concern Opinion ◽  
The Impact

Objective – The auditor is responsible for obtaining sufficient audit evidence about the accuracy and proper use of the going concern assumption from the company’s management through its financial statements. These evidence are used for the purpose of deciding whether there are material uncertainties about the entity's ability to maintain the continuity of its business. Thus, the objective of this paper is to examine the impact of bankruptcy prediction, company’s financial condition, previous year audit opinion, firm size and audit tenure towards Auditor’s going concern opinion. Methodology/Technique – The object of this paper is the service companies listed on the Indonesia Stock Exchange for the period of 2011-2014. This paper uses secondary data and samples taken were determined based on the purposive sampling method. The regression logistic is used to analyse data. Findings – The results of this research show that bankruptcy prediction, company’s financial condition, previous year audit opinion, firm size, and audit tenure all simultaneously, have a significant impact towards Auditor’s going concern opinion, particularly Previous Year Audit Opinion. Novelty – This paper provides insights into the factors affecting auditors in providing a going concern opinion in the case of Indonesian companies. Type of Paper: Empirical Keywords: Bankruptcy Prediction; Company’s Financial Condition; Previous Year Audit Opinion, Firm Size; Audit Tenure; Auditor’s Going Concern Opinion. JEL Classification: D81, M42.

scholarly journals The Effect of Financial Distress, Firm Growth, and Previous Year’s Opinion on The Firm’s Going Concern Opinion

2021 ◽  
Vol 58 (1) ◽  
pp. 247-258
Author(s):  
Amiruddin, Grace T. Pontoh, Marina Lauren
Keyword(s):  
Financial Distress ◽  
Firm Growth ◽  
Stock Exchange ◽  
Secondary Data ◽  
Substantial Impact ◽  
Audit Opinion ◽  
Going Concern ◽  
Service Companies ◽  
Going Concern Opinion ◽  
The Impact

This research aims to examine and determine the impact of financial distress, firm growth, and opinion on previous year to firms‘going concern. The study was carried on service companies that are listed on Indonesia Stock Exchange during 2015-2017. A total of 210 samples were selected using the purposive sampling method. This research utilizes secondary data in the form of the firm’s financial statements and independent auditor’s reports. This research utilized logistic regression analysis to process the data. Results showed that financial distress and previous year’s opinion has significantly affect the firm’s going concern audit opinion while the firm growth has no substantial impact on the firm’s going concern audit opinion. Simultaneously, financial distress, firm growth, and previous year's opinion significantly affected the firm's going concern opinion.

scholarly journals PENGARUH UKURAN PERUSAHAAN DAN PENERIMAAN OPINI GOING CONCERN TERHADAP HARGA SAHAM

2019 ◽  
Vol 4 (2) ◽  
Author(s):  
Hesekiel Siregar ◽  
Putri Nurmala
Keyword(s):  
Consumer Goods ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Multiple Linear Regression Analysis ◽  
Manufacturing Companies ◽  
Going Concern ◽  
Size Acceptance ◽  
Going Concern Opinion

This study aims to determine the effect of firm size and acceptance of a going concern opinion on stock prices. In this study, the object of which is manufacturing firms listed in Indonesia Stock Exchange (BEI) in the consumer goods sector to the period from 2011 until 2015. In this study, the data used is data based on annual financial reports obtained through the site www .idx.co.id and sahamm price report data obtained through www.sahamok.com site. The sampling method this study using purposive sampling counted 17 manufacturing companies in the consumer goods sector for 5 years for a total observation in this study to 85 data. Statistical calculations used to test the hypothesis in this study is the associative analysis and verification analysis. Analysis consisted of deskriktif statistical verification, classic assumption test, multiple linear regression analysis, analysis of determination, f test, t test. The results of this research shows that the size of the companies have a significant effect on stock prices and the acceptance of a going concern opinion does not affect the stock price.�Key Words: Company Size, Acceptance of Going concern Opinion, Stock Price

scholarly journals The Impact of Interest Coverage Ratio on Value Relevance of Reported Earnings: Evidence from South Korea

2019 ◽  
Vol 11 (24) ◽  
pp. 7193
Author(s):  
Hyunmi Ji
Keyword(s):  
Capital Market ◽  
Stock Price ◽  
Value Relevance ◽  
Hypothesis Test ◽  
Forecast Error ◽  
Operating Income ◽  
Coverage Ratio ◽  
Reported Earnings ◽  
The Impact ◽  
The Capital Market

This study examined the usefulness of the cash-based interest coverage ratio (CICR). It also verified the usefulness of accrual-based interest coverage ratio (AICR), which is used as a criterion for exiting insolvent companies. This paper analyzed whether the value relevance of earnings to stock price differs according to various interest coverage ratios. The CICR is measured by dividing the cash generated from operations by the interest payments. AICR is measured by operating income divided by interest expenses. The research model for the hypothesis test of this study is based on the Ohlson model, which has been used for the test of stock value relevance in many previous studies. As a result of the empirical analysis, the CICR is used as useful information by the investors in the capital market. CICR is used as useful information in the capital market as an indicator of sustainability of profits. This study suggests that supervisors and financial institutions can make rational decision-making if they consider AICR and CICR as criteria for exiting insolvent companies. The contribution of this study was to suggest that the CICR can be a useful indicator for determining whether a company is insolvent due to its relatively low forecast error and high predictability.

Causes and consequences of voluntary assurance of CSR reports

2019 ◽  
Vol 32 (8) ◽  
pp. 2451-2474 ◽  
Author(s):  
Peter Clarkson ◽  
Yue Li ◽  
Gordon Richardson ◽  
Albert Tsang
Keyword(s):  
Capital Market ◽  
Corporate Sustainability ◽  
Objective Measure ◽  
Market Valuation ◽  
Net Benefit ◽  
Content Type ◽  
Accounting Firm ◽  
Market Participants ◽  
Big 4 ◽  
The Impact

Purpose The purpose of this paper is twofold. First, the authors investigate a firm’s decision to provide a CSR report, and if so, whether to have the report assured and to seek higher quality assurance as reflected through the choices of the scope of the assurance and type of assurer, Big 4 accounting firm vs specialist consultant. Second, the authors investigate the impact of voluntary assurance of CSR reports, assurance scope and type of assurer on the likelihood of inclusion in the DJSI and on market valuation. Design/methodology/approach The study’s sample consists of 17,050 firm-year observations from 40 countries with CSR reports available from Corporate Register and ESG metrics available from ASSET4 over the period 2009–2015. The study first empirically examines the associations between CSR commitment and each of CSR report provision, CSR report assurance, assurance scope and type of assurer. It then examines that association between both inclusion in the DJSI and market valuation with each of CSR report assurance, assurance scope and type of assurer, using inclusion in the DJSI as an objective measure of a firm’s reputation for sustainability given its recognition as a leading indicator for corporate sustainability and market valuation as a reflection of the broader set of capital market participants. Findings The authors establish two key findings consistent with the predictions of signaling theory. First, we show that high CSR commitment firms are more likely to: provide standalone CSR reports; obtain assurance; obtain assurance from a Big 4 accounting firm; and, adopt higher assurance scope. Second, the authors find that both CSR report assurance and assurance scope increase the likelihood of inclusion in the DJSI, but that the type of assurance provider does not. Alternatively, the authors find that capital market participants appear to value the provision of a CSR report only when it is assured by a Big 4 accounting firm. Originality/value The results in the existing literature exploring the capital market benefits to CSR Assurance have been mixed. Firms that voluntarily obtain CSR Assurance incur a cost in doing so and must perceive a net benefit from obtaining such assurance. Despite the limited guidance currently provided by existing CSR standards, we establish the existence of benefits to obtaining CSR Assurance in terms of enhanced likelihood of DJSI inclusion and, more generally, enhanced market valuation. The discussions with DJSI analysts indicate that CSR assurance does enhance the perceived reliability of CSR data, thus improving user confidence.

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