SYNOPSIS
The accuracy of audit reports is often viewed as a signal for audit quality. Prior research shows that in the context of going-concern reporting in audit markets dominated by public firms, some auditors are more accurate than others (e.g., Big N firms). This study is the first large-scale study that investigates going-concern reporting accuracy in an audit market dominated by private firms. The threat of reputation and litigation costs incentivizes auditors to report accurately in markets dominated by public firms, but such incentives are largely absent in markets dominated by private firms. Hence, reporting accuracy in such markets might not vary across auditors. Our main analysis is based on a sample of 1,375 Belgian firms that ceased to exist within one year from the financial statement date. Our results show that the frequency of Type II misclassification does not vary across auditor types (Big 4 versus non-Big 4, audit firm and partner industry specialists versus non-specialists, more experienced versus less experienced, and female versus male auditors). Overall, these results cast doubt on the existence of quality differences among auditors in audit markets dominated by private firms.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.