Interpreting recent changes in audit modification rates with the change in client risk and audit environment

evidence from Australia

Neil Fargher, Liwei Jiang

Research output: Contribution to conferencePaper

Abstract

With the high-profile corporate collapses in the period 2000 to 2002, the demise of Arthur Andersen, and the intense legislative and media scrutiny that followed, we expect auditors were more likely to issue going-concern audit opinions in the subsequent period. The convergence of these events potentially impacts both the client’s risk and the auditor’s reporting decision. We find that after controlling for the probability that clients are likely to receive a going-concern opinion, auditors are more likely to issue a going-concern audit opinion in 2003 than in 1999. The results suggest that the increase in going-concern modification rates is due to the increase in the auditors’ propensity to issue a going-concern opinion rather than the changes in client risk. We also examine non-audit service fees paid to the incumbent auditors and the results do not support the view that the provision of non-audit services per se has compromised auditors’ independence.
Original languageEnglish
Number of pages44
Publication statusPublished - 2006
EventAccounting Association of Australia and New Zealand Conference (2006) - Wellington, New Zealand
Duration: 2 Jul 20064 Jul 2006

Conference

ConferenceAccounting Association of Australia and New Zealand Conference (2006)
CityWellington, New Zealand
Period2/07/064/07/06

Keywords

  • going-concern
  • modified audit opinions
  • non-audit services
  • auditor independence

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