The Relation between Managerial Ability and Audit Fees and Going Concern Opinions

2014 ◽  
Vol 34 (3) ◽  
pp. 139-160 ◽  
Author(s):  
Gopal V. Krishnan ◽  
Changjiang Wang
Keyword(s):  
Empirical Evidence ◽  
Audit Fees ◽  
Managerial Ability ◽  
Firm Level ◽  
Going Concern ◽  
Going Concern Opinion ◽  
Corporate Resources ◽  
Ability Measure

SUMMARY While prior research has examined the relation between firm-level attributes and auditors' decisions, there is little empirical evidence on whether managerial attributes are informative to auditors. We examine the relation between managerial ability, i.e., ability in transforming corporate resources to revenues, and audit fees and a going concern opinion. We use the managerial ability measure recently developed by Demerjian, Lev, and McVay (2012). We find that incremental to firm-level attributes, both audit fees and the likelihood of issuing a going concern opinion are decreasing in managerial ability. Collectively, our findings support the notion that managerial ability is relevant to auditors' decisions.

scholarly journals KEMAMPUAN PERGANTIAN AUDITOR DAN PRIOR OPINION MEMODERASI PENGARUH POTENSI FINANCIAL DISTRESS TERHADAP OPINI GOING CONCERN

2017 ◽  
pp. 3259
Author(s):  
Putu Yudha Asteria Putri ◽  
Ida Bagus Putra Astika ◽  
Made Gede Wirakusuma
Keyword(s):  
Empirical Evidence ◽  
Financial Distress ◽  
Stock Exchange ◽  
Secondary Data ◽  
Manufacturing Companies ◽  
Potential Influence ◽  
Going Concern ◽  
Going Concern Opinion ◽  
Prior Opinion ◽  
Contingency Approach

This study aimed to get empirical evidence the auditor's ability to change and prior opinion in moderating influence on the potential financial distress Award going concern opinion. There’s a going concern opinion because the company indicated no longer able to carry out its life. The results of previous studies get inconsistent results in terms of the potential influence on the provision of financial distress going concern opinion. The existence of a contingency approach can be completed in this study, where the variables change of auditor and prior opinion allegedly moderating influence on the potential financial distress Award going concern opinion. This study uses secondary data. Manufacturing companies listed in Indonesia Stock Exchange period 2009-2015 the population in this study by the amount total of the samples are 77 samples were selected by purposive sampling.

Do High Ability Managers Mitigate Litigation Related to Financial Reporting?

2020 ◽  
pp. 0000-0000
Author(s):  
Gopal V. Krishnan ◽  
Changjiang Wang ◽  
Wei Yu
Keyword(s):  
Financial Reporting ◽  
Lower Risk ◽  
Bad News ◽  
Financial Statement ◽  
Litigation Risk ◽  
High Ability ◽  
Managerial Ability ◽  
Firm Level ◽  
Negative Relation ◽  
Corporate Resources

We provide empirical evidence that incremental to the commonly used industry-based proxy for litigation risk and firm-level attributes, managerial ability in transforming corporate resources into revenues is associated with lower risk of litigation arising from financial reporting. The negative relation between managerial ability and litigation risk does not seem to stem from more frequent disclosure of bad news. Instead, our results suggest that high ability managers are less likely to engage in opportunistic financial reporting, i.e., lower financial statement errors and abnormal revenues. The contribution of our study is to explicitly offer a managerial human capital perspective in explaining variations in litigation risk related to financial reporting.

ANALISIS PENGARUH FINANCIAL DISTRESS, UKURAN PERUSAHAAN, SOLVABILITAS, DAN PROFITABILITAS TERHADAP PENERIMAAN OPINI AUDIT GOING CONCERN

Media Ekonomi ◽  
2016 ◽  
Vol 16 (1) ◽  
pp. 163
Author(s):  
Ferni Listantri ◽  
Rina Mudjiyanti
Keyword(s):  
Logistic Regression ◽  
Empirical Evidence ◽  
Financial Distress ◽  
Quantitative Research ◽  
Secondary Data ◽  
Going Concern ◽  
Going Concern Opinion ◽  
Negative Effect ◽  
Positive Effect

The purpose of the research was to find the empirical evidence of the financial distress positive effect to the going concern opinion audit, to find the empirical evidence of the negative effect of company to the going concern opinion audit, to find empirical evidence of solvability’s positive effect to the going concern opinion audit, to find empirical evidence of profitability’s negative effect to the going concern opinion audit.This research is descriptive quantitative research where the analysis was conducted using logistic regression. Then type of data used in the research was secondary data, the population and sample which used in this research was 100 of companies. Result of the research shows that financial distress partially does not positively affect to the going concern opinion audit, size of the company does not affect negatively to going concern opinion audit, the solvability positively affect to the going concern opinion audit, and profitability negatively affects to the going concern opinion audit. Keywords : going concern opinion audit, financial distress, size of company, solvability, and profitability.

Corporate Innovation and the Auditor's Assessment of Going Concern

2021 ◽  
Author(s):  
Feng Guo ◽  
Adi Masli ◽  
Yang Xu ◽  
Joseph H. Zhang
Keyword(s):  
Patent Citation ◽  
Firm Level ◽  
High Exposure ◽  
External Auditors ◽  
Going Concern ◽  
Innovation Activities ◽  
Corporate Innovation ◽  
Going Concern Opinion ◽  
Financially Distressed ◽  
Mitigating Factor

In this study, we examine whether external auditors assess corporate innovation activities when considering a financially distressed client's ability to continue as a going concern. Using patent count, patent market value, and patent citation to measure the firm-level innovation output, we document that higher quantity and quality of innovation activities are associated with a lower likelihood of going concern opinions. The association between innovation and going concern opinions is more pronounced for audit offices with high exposure to corporate innovation and clients operating in R&D-intensive industries. In additional analyses, we confirm that innovation is associated with future business value, as measured by future profitability and intellectual property licensing agreements. We conclude that corporate innovation represents a mitigating factor when auditors consider whether a going concern opinion is appropriate for a financially distressed client.

Managerial Ability and the Accuracy of the Going Concern Opinion

2018 ◽  
Vol 18 (1) ◽  
pp. 29-52 ◽  
Author(s):  
Nathan R. Berglund ◽  
Donald R. Herrmann ◽  
Bradley P. Lawson
Keyword(s):  
Type I ◽  
Type Ii ◽  
Managerial Ability ◽  
Type I Errors ◽  
Bankruptcy Risk ◽  
Going Concern ◽  
Information Signal ◽  
Going Concern Opinion ◽  
Prior Literature ◽  
Type Ii Errors

ABSTRACT Current audit guidance directs the auditor to modify their opinion in the presence of significant doubt about their client's ability to continue as a going concern. This paper examines whether managerial ability influences the accuracy of auditors' going concern information signal. Following prior literature, we assess accuracy based on the subsequent viability of the client. We find that, while managerial ability decreases the risk of Type I errors (the auditor issues a going concern opinion for a firm that subsequently remains viable), managerial ability increases the risk of Type II errors (the auditor issues a standard unqualified report for a firm that subsequently files for bankruptcy). Considering prior research indicates that the auditor's opinion provides important information to the market, this finding has important public interest implications regarding the signaling of bankruptcy risk to investors and creditors by auditors' going concern opinion.

The Relationship between Audit Team Composition, Audit Fees, and Quality

2017 ◽  
Vol 36 (3) ◽  
pp. 115-135 ◽  
Author(s):  
Sarowar Hossain ◽  
Kenichi Yazawa ◽  
Gary S. Monroe
Keyword(s):  
Audit Quality ◽  
Positive Association ◽  
Audit Fees ◽  
Professional Staff ◽  
Data Availability ◽  
Team Composition ◽  
Going Concern ◽  
Going Concern Opinion ◽  
Audit Team ◽  
First Time

SUMMARY Using Japanese data, we investigate whether there is a positive association between audit team composition based on the number of senior auditors, assistant auditors, and other professional staff on the audit team and audit fees and a variety of commonly used measures of audit quality (likelihood of issuing a going concern opinion and a first-time going concern opinion for a sample of financially distressed companies, the absolute value of discretionary and working capital accruals). We find that the number of senior auditors, assistant auditors, and other professional staff on the audit team are positively associated with audit fees. We find that the number of senior auditors on the audit team has a positive association with audit quality. However, the number of assistant auditors and other professional staff on the audit team are not significantly associated with any of our audit quality measures. JEL Classifications: M41; M42. Data Availability: All data are publicly available from the sources indicated in the paper.

The Going Concern Opinion: A Time for a Referendum?

2010 ◽  
Author(s):  
Igor Pustylnick ◽  
Vicki Anderson ◽  
John H. Nugent
Keyword(s):  
Going Concern ◽  
Going Concern Opinion

Fraud Risk Awareness and the Likelihood of Audit Enforcement Action

2016 ◽  
Vol 30 (3) ◽  
pp. 379-392 ◽  
Author(s):  
Jared Eutsler ◽  
Erin Burrell Nickell ◽  
Sean W. G. Robb
Keyword(s):  
Financial Reporting ◽  
Financial Distress ◽  
Professional Community ◽  
Securities And Exchange Commission ◽  
Counterfactual Reasoning ◽  
Going Concern ◽  
Enforcement Action ◽  
Fraud Risk ◽  
Regulatory Perspective ◽  
Going Concern Opinion

SYNOPSIS Prior research indicates that issuing a going concern opinion to financially stressed clients generally reduces the risk of litigation against the auditor following a bankruptcy (Kaplan and Williams 2013; Carcello and Palmrose 1994). However, we propose that a going concern report may indicate prior knowledge of financial distress, an important fraud risk factor, and this may have repercussions for the auditor if a fraud is subsequently uncovered. Consistent with counterfactual reasoning theory, experimental research suggests that a documented awareness of fraud risk actually increases the likelihood of litigation against the auditor following a fraud (Reffett 2010). This concern has been echoed by the professional community (AICPA 2004; Golden, Skalak, and Clayton 2006) and may be exacerbated by the current outcome-based regulatory environment (Peecher, Solomon, and Trotman 2013). To examine this issue we review Auditing and Accounting Enforcement Releases (AAERs) issued by the Securities and Exchange Commission (SEC) for alleged financial reporting frauds between 1995 and 2012. Results suggest that going concern report modifications accompanying the last set of fraudulently stated financials are associated with a greater likelihood of enforcement action against the auditor. This finding is consistent with counterfactual reasoning theory and suggests that, from a regulatory perspective, auditors may be penalized for documenting their awareness of fraud risk when financial statements are later determined to be fraudulent.

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