scholarly journals Do Auditors Convey Financial Misstatement Risks through Audit Opinions? A Textual Analysis of Modified Audit Reports in China.

2020 ◽  
Author(s):  
Wei Qiang ◽  
Hau Yi YEUNG ◽  
Kenny Z. Lin
Keyword(s):  
Textual Analysis ◽  
Financial Misstatement ◽  
Audit Opinions ◽  
Audit Reports

Does Auditor Explanatory Language in Unqualified Audit Reports Indicate Increased Financial Misstatement Risk?

2014 ◽  
Vol 89 (6) ◽  
pp. 2115-2149 ◽  
Author(s):  
Keith Czerney ◽  
Jaime J. Schmidt ◽  
Anne M. Thompson
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Positive Association ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Reporting Quality ◽  
Accounting Principles ◽  
Client Relationship ◽  
Financial Misstatement ◽  
Audit Reports

ABSTRACT According to auditing standards, explanatory language added at the auditor's discretion to unqualified audit reports should not indicate increased financial misstatement risk. However, an auditor is unlikely to add language that would strain the auditor-client relationship absent concerns about the client's financial statements. Using a sample of 30,825 financial statements issued with unqualified audit opinions during 2000–2009, we find that financial statements with audit reports containing explanatory language are significantly more likely to be subsequently restated than financial statements without such language. We find that this positive association is driven by language that references the division of responsibility for performance of the audit, adoption of new accounting principles, and previous restatements. In addition, we find that (1) “emphasis of matter” language that discusses mergers, related-party transactions, and management's use of estimates predicts restatements related to these matters, and that (2) the financial statement accounts noted in the explanatory language typically correspond to the accounts subsequently restated. In sum, our results suggest that present-day audit reports communicate some information about financial reporting quality.

Justifications for the Modified Opinions and for Other Observations in the Audit Reports

2020 ◽  
Vol 18 (160) ◽  
pp. 785-800
Author(s):  
Costel ISTRATE ◽  
◽  
Ovidiu Constantin BUNGET ◽  
Irimie Emil POPA ◽  
◽  
...  
Keyword(s):  
Stock Exchange ◽  
Legal Issues ◽  
Global Crisis ◽  
Going Concern ◽  
Tangible Assets ◽  
Fixed Assets ◽  
Main Observation ◽  
Audit Opinions ◽  
Audit Reports

The purpose of this paper is to identify and to comment the main justifications of modified audit opinions and the main observations included in the emphasis of matter paragraphs from the audit reports of Romanian companies listed on the regulated market of Bucharest Stock Exchange (BSE). The authors analyze a sample of more than 1,000 observations-year for the 2007-2019 period. They found that 25% of these reports contain a modified opinion and the main explanations relate to the revaluations of fixed tangible assets, to the provisions, to the impairment of the fixed assets, to some legal issues, to items concerning the closing inventory and, to a lesser extent, to the going concern matters. In 30% of the reports analyzed, there was identified emphasis of matter paragraphs; the main observation is by far related to the going concern, followed by the financial and operating difficulties of companies and by the effects of different global crisis (financial or others).

Does the use of honorific appellations in audit reports connote higher financial misstatement risk? Evidence from China

2018 ◽  
Vol 26 (2) ◽  
pp. 154-181 ◽  
Author(s):  
Feng Chen ◽  
Xingqiang Du ◽  
Shaojuan Lai ◽  
Mary Ma
Keyword(s):  
Audit Quality ◽  
Positive Association ◽  
Auditor Independence ◽  
Accounting Firms ◽  
Content Type ◽  
Public Firms ◽  
Financial Misstatements ◽  
Financial Misstatement ◽  
Chinese Auditors ◽  
Audit Reports

Purpose From the sociolinguistic perspective, the purpose of this paper is to examine whether the honorific and actual-name appellations that Chinese auditors use to address clients in audit reports connote differential financial misstatement risk. Specifically, the authors hypothesize that auditors’ use of honorifics signals their inferior social status relative to their clients, thereby leading to compromised auditor independence, lower audit quality, and higher financial misstatement risk. Design/methodology/approach The authors use a sample of manually coded appellation data from audit reports of Chinese public firms between 2003 and 2012 to conduct the research. Findings The authors find significantly greater financial misstatements, both in terms of likelihoods and magnitudes, for companies addressed by honorifics than for those addressed by actual names. Moreover, compared to auditors’ consistent honorific usage, discretionary honorific usage has a stronger positive association with misstatements. The authors further show that the positive association between honorific usage and client misstatement risk weakens when the audit firm is a Top 10 accounting firms in China, is an industry specialist, is formed as a partnership, or resides in a more concentrated audit market. Originality/value This study contributes to the sociolinguistics literature in accounting and provides evidence supporting the reform proposed by the International Auditing and Assurance Standards Board to enhance the usefulness of audit reporting.

scholarly journals A Multicriterion Decision Support Methodology For Audit Opinions: The Case Of Audit Reports Of Distressed Firms In Turkey

2011 ◽  
Vol 10 (12) ◽  
pp. 37 ◽  
Author(s):  
Burcu Adiloglu ◽  
Bengu Vuran
Keyword(s):  
Stock Exchange ◽  
Manufacturing Sector ◽  
Audit Report ◽  
Audit Process ◽  
Audit Opinion ◽  
Accounting Scandals ◽  
Distressed Firms ◽  
Audit Opinions ◽  
One Year ◽  
Audit Reports

The audit report represents the most important part of the audit process and it is the sole communication medium between the auditor and the users of the financial statements. After accounting scandals, auditors responsibility for assessing the appropriateness of audit opinions has become the subject of much debate in the auditing profession and considerable research by academics. This increased attention is due to the fact that auditors appear to be reluctant to disclose audit opinions other than unqualified. Indeed, many companies in the year prior to bankruptcy receive an audit report in which going concern uncertainty is not disclosed. The research of this paper is designed to examine the relationship between the type of audit reports and firm failure. Logistic regression analysis is applied to test the model of audit opinion decision with a sample of financially distressed firms operating in manufacturing sector in Istanbul Stock Exchange (ISE) between the period of 1998-2006. The results reveal that the audit opinions of distressed firms indicate the auditors fail to issue appropriate audit opinions one year prior to failure.

Karakteristik Auditee Sebagai Penentu Opini Audit Pada Perusahaan Manufaktur Yang Terdaftar Di Bursa Efek Indonesia Tahun 2016-2017

2020 ◽  
Vol 1 (1) ◽  
pp. 23-30
Author(s):  
Ririn Lespitasari ◽  
Fatchur Rochman
Keyword(s):  
Significant Influence ◽  
Quantitative Research ◽  
Stock Exchange ◽  
Manufacturing Companies ◽  
Operating Margin ◽  
Net Profit ◽  
Current Asset ◽  
Research Population ◽  
Audit Opinions ◽  
Audit Reports

Abstract— Research objectives are to determine the effect of operating margin ratio to total assets on qualified audit opinions. Secondly, To determine the effect of net profit to sales on qualified audit opinions. Thirth, to determine the effect of current asset to current liabilities on qualified audit opinions. And fourth, to determine the effect of operating margin to total assets, net profit to sales and current asset to current liabilities simultaneously to qualified audit opinions. The research population is manufacturing companies listed on the Indonesia Stock Exchange in 2016 – 2017. This type of research is quantitative research. Data collection techniques use documentation. The analysis technique uses linear regression, t test and F test. The results in this study indicate, there is a positive and significant influence between operating margin to total assets and qualified audit reports on Manufacturing Companies listed on the Indonesia Stock Exchange. Scondly, there is a positive and significant influence between net profit and qualified audit reports on Manufacturing Companies Listed on the Indonesia Stock Exchange. Thirth, there is a positive and significant influence between current asset to current liabilities and qualified audit reports on Manufacturing Companies Listed on the Indonesia Stock Exchange. Fourth, there is a simultaneous effect of operating margin to total assets, net profit and current asset to current liabilities against qualified audit reports on Manufacturing Companies listed on the Indonesia Stock Exchange. Keywords—: operating margin to total assets; net profit; current asset to current liabilities; and qualified audit report.

scholarly journals Contribution of records management to audit opinions and accountability in government

2020 ◽  
Author(s):  
Rodreck David
Keyword(s):  
Asset Management ◽  
Financial Management ◽  
National Development ◽  
Records Management ◽  
Monitoring And Control ◽  
Monitoring And Control System ◽  
Revenue Collection ◽  
Audit Opinions ◽  
Auditor General ◽  
Audit Reports

Background: Auditing can support national democratic processes, national development and government good will. Supreme Audit Institutions (SAI), such as offices of Auditor General, publish consolidated reports on audit outcomes for local authorities, government departments, parastatals and related public entities. These reports identify broad areas analysed during audit exercises that often include financial management, governance, asset management, risk management, revenue collection and debt recovery. They highlight trends that were detected during audit exercises at the end of a financial year. The reports further show how records and records management affect audit exercises as well as financial management within the audited institutions.Objectives: The intention of the research was to ascertain the contribution of records management to audit opinions and accountability in financial management in Zimbabwean government entities.Method: A document analysis of Comptroller and Auditor General of Zimbabwe (CAGZ)’s reports was used to identify the types of decisions and recommendations (audit opinions) issued, in juxtaposition to the records management issues raised.Results and Conclusion: This study shows that there is a strong correlation between records management concerns and audit opinions raised by the CAGZ’s narrative audit reports. Inadequate records management within government entities was associated with adverse and qualified opinions and, in some cases, unqualified opinions that had emphases of matter. There was a causal loop in which lack of documentary evidence of financial activities was the source cause of poor accounting and poor audit reports. Errors resulting from incomplete or inaccurate records meant that government entities were not showing a true picture of their financial status and their financial statements could be materially misstated. As an important monitoring and control system, records management should be integrated into the accounting and auditing processes of government entities.

The Information Value of Qualified and Adverse Audit Reports: Evidence from the Municipal Sector

2020 ◽  
Vol 39 (1) ◽  
pp. 21-41
Author(s):  
Christopher T. Edmonds ◽  
Ryan D. Leece ◽  
Beth Y. Vermeer ◽  
Thomas E. Vermeer
Keyword(s):  
Propensity Score ◽  
Local Governments ◽  
Information Value ◽  
Data Availability ◽  
Municipal Bond ◽  
Market Participants ◽  
General Obligation ◽  
Audit Opinions ◽  
State And Local ◽  
Audit Reports

SUMMARY This study investigates whether qualified/adverse audit opinions on the fairness of the financial statements impact market yields for city/county general obligation bonds. Although state and local governments represent a significant part of the U.S. economy, the value of external assurance in this market is questionable given the untimely nature of municipal audit reports. We find evidence consistent with municipal bond market participants penalizing counties and local governments with qualified/adverse audit opinions for both primary market issuances and secondary trading. For example, in a propensity score matched sample, we find that, on average, primary market yields are higher by 34 higher basis points for municipalities receiving qualified/adverse audit opinions. Our primary market findings hold for two matched samples (attribute and propensity score), a within-sample analysis, and a number of robustness tests. The results suggest that municipal investors value the information content of an independent audit report. Data Availability: Data are available from the public sources cited in the text.

The Role of Accounting in Ponzi Schemes

2020 ◽  
Author(s):  
Stephen Deason ◽  
Shivaram Rajgopal ◽  
Gregory Waymire ◽  
Roger M White
Keyword(s):  
Financial Statements ◽  
Individual Investor ◽  
Incremental Effect ◽  
Ponzi Scheme ◽  
Audit Opinions ◽  
Accounting Reports ◽  
Audit Reports

Do accounting reports bolster investors' trust? We examine this question by modelling the incremental effect of Ponzi scheme operators providing accounting reports on the magnitude and lifespan of the underlying fraud. This investigation is possible in our setting because some, but not all, Ponzi scheme operators provide discretionary accounting reports (like falsified financial statements or fictional audit opinions) to current and potential investors. We observe that falsified audit reports lower the likelihood of regulatory detection by about 40%, and falsified accounting statements increase individual investor contributions by about 30%. Together, these results indicate that accounting reports bolster investors' trust, and that fraudsters can exploit trust in accounting institutions to maximize gains and minimize the likelihood of detection, even when accounting misrepresentations are not necessary.

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