Is an Auditor's Propensity to Issue Going Concern Opinions a Valid Measure of Audit Quality?

Document Type

Article

Source of Publication

Australian Accounting Review

Publication Date

6-1-2020

Abstract

© 2020 CPA Australia A number of previous studies use auditor propensity to issue a going concern opinion (GCO) as a proxy of audit quality when examining a sample of financially distressed firms. This study examines whether audit quality (measured by discretionary accruals) influences the probability of financially distressed firms receiving GCOs using a non-specific sample of 2937 firm-year observations from Australia over the period 2011–2015. The study first investigates the association between financially distressed firms and the issuance of GCOs. This association is then re-tested after separating the total sample into low and high audit quality subsamples. The results indicate that financially distressed firms are more likely to receive GCOs, confirming the application of ASA 570 Going Concern. However, financially distressed firms that receive GCOs from their auditors are limited to firms that have higher-quality audits.

ISSN

1035-6908

Publisher

Blackwell Publishing Ltd

Volume

30

Issue

2

First Page

144

Last Page

153

Disciplines

Business

Scopus ID

85081964510

Indexed in Scopus

yes

Open Access

no

Link to Full Text

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