SUMMARY: Corporate scandals and the resulting passage of the Sarbanes-Oxley Act (SOX) in 2002 significantly affected the auditing profession. The quality of financial statement audits was called into questioned and the media and regulators held audit firms responsible. Several studies found evidence of an increase in the issuance of going-concern opinions after the passage of SOX relative to earlier time periods (Geiger et al. 2005; Nogler 2008; Myers et al. 2008). Auditors, it appears, behave more conservatively when the profession is in the headlines. We replicate and extend this research to determine whether the heightened conservatism continues or whether it fades as time passes. We examine audit opinions issued 12 months or less prior to a bankruptcy filing for 565 companies from 2000–2008. Our findings indicate that while the proportion of going-concern modifications increases sharply in 2002–2003 compared to 2000–2001, it declines in the periods that follow, ultimately returning to its pre-Enron level.

SUMMARY: We examine post-restatement audit fees and executive turnover for a sample of firms that restated their 2003 financial statements. We investigate and find evidence that audit fees are higher for restatement firms compared with a matched-pair control group of non-restatement firms. We propose that the higher audit fees reflect a cost of both an increase in perceived audit risk and a loss of organizational legitimacy. Prior literature suggests that changing top management is a response to a legitimacy crisis; thus we expect to find that executive turnover moderates the positive relationship between restatement and audit fees. Our results indicate that a change in CFO for a restatement firm moderates the increased audit fee, but a change in CEO does not.

PurposeThe purpose of this study is to examine whether credit ratings inform auditors' going‐concern (GC) audit opinions for companies facing imminent bankruptcy.Design/methodology/approachUsing data from BankruptcyData.com the authors identify US publicly‐held, financially‐distressed companies that filed bankruptcy from January 1, 2000 through June 30, 2009. Logistic regression is applied by regressing audit opinion type on select financial, industry, and credit rating data.FindingsResults show that the likelihood of an auditor issuing a GC opinion is associated with the credit rating issued by Standard & Poor's (S&P) preceding the audit report date. In results supporting the idea that the auditor's opinion has informational value, the paper also finds that after issuance of a GC report, S&P's credit rating tends to be downgraded.Research limitations/implicationsWhile the findings indicate observable relationships between audit opinions and credit ratings, the models used in primary analysis cannot determine causality.Originality/valueThis study sheds some light on how credit ratings and audit opinions may be inter‐related in distressed companies, an issue previously not investigated in the literature.

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We investigate the relationship between institutional shareholdings and the firm's corporate governance by looking at changes in the composition of the board of directors and audit committee while institutional ownership increases over time. Our comparison of 74 firms showing increased institutional ownership with a matched control group of 62 firms finds that increased institutional ownership is positively associated with a higher proportion of outsiders on the board and with audit committee and board members who are less entrenched. These factors are widely regarded as signs of a strengthened system of corporate governance and control, underscoring the important role that institutional ownership may play in the firm's corporate governance structure.