In this synthesis we review research on going-concern modified audit opinions (GCOs) and develop a framework to categorize this research. We identify three major areas of research: (1) determinants of GCOs that include client factors, auditor factors, auditor-client relationships, and other environmental factors; (2) accuracy of GCOs; and (3) consequences arising from GCOs. We identify method-related considerations for researchers working in the area and identify future research opportunities.

We examine the impact of the global financial crisis (GFC) on auditor behaviour in Australia. Using a sample of listed companies, we examine whether the GFC impacted the propensity of auditors to issue going concern modifications and increased audit effort as reflected in audit fees and audit reporting lag. Controlling for client characteristics, we find an increase in the propensity to issue going concern opinions during the period 2008-2009 compared with the period 2005-2007 and that Big N auditors responded to the GFC earlier than non-Big N auditors. In relation to audit effort, we find evidence of increased audit fees during the period 2008-2009 compared with the period 2005-2007. There is, however, no evidence of increased audit reporting lags during the GFC.

Ab.'itract. This studv exfends Ihe growing literature on the deleminants of the variation in the relationship between unexpected earnings and abnormal security returns (the earnings response coefficiens) We hypothesize that the firm's defaui! nsk as measured hy financial leverage would affect she earnings response coefficient. We test this hypothesis hy partitioning firms according to (1) the existence of debt in the capital structure (all-equity versus levered firms) and (2) the level of leverage (low-leverage versus high-leverage fimis). The results are generally consistent with our hypothesis. Specifically, we find thai the earnings response coefficients are larger for ajl-equity and low-leverage firms visa-vis matched-levered and high-leverage firms, even after controlling for the effects of equit\' beta, persistence, risk premiutn, and tneasurement error in unexpected earnings. Our findings are also robust with respect to the choice of earnings measure, either before or after interest charges.Resume. L'etude s'inscrit dans le prokmgement des travaux de plus en plus nombreux portanl sur ies determinants de la fluctuation de la relation entre les benefices imprevus et les rendements anormaux des titres (le coefficient de reponse des benefices). Les auteurs posent rhypothese que le risque de non-paiement de i'entrepnse. mesure en termes de levier financier, infiue sur le coefficient de reponse des benefices. Les auteurs testent cette hypothese en classant les entreprises selon )) I'existence ou non de capitaux empruntes dans la structure du capital (entreprises dont ies capitaux sont exclusivement des capitaux propres par rapport aux entreprises dont les capitaux sont en partie empruntes I et 2) I'importance du ievier financier (entreprises dont le ievier financier es! faible par rapport aux entreprises dont i'importance du levier financier esi elevee). Dans I'ensemble. les resultats confirment I'hypothese. De fai^on plus precise, les coefficients de repon.se des benefices sont plus eleves pour les entreprises dont les capitaux soni exclusivement des capitaux propres et les entreprises dont le levier financier est faible. par rapport aux entreprises. classees selon la taille et le secteur d'activite. donl les capitaux sont davantage constitues de capitaux empruntes et dont le levier financier esl eleve. meme lorsque sont controlees les repercussions du beta des capitaux propres. de la persistance. de ia prime de nsque et de l'erreur de mesure des benefices innprevus. Les resultats de leur etude resistent egalement a Panalyse lorsqu'ils font imervenir le choix de ia mesure des benefices, avant ou apres avoir tenu compte des interets debiteurs. Unexpected Earnings and Abnormal Security Returns 21 IntroductionSince the seminal work of Bal! and Brown (1968), a substantial line of research has documented strong evidence on the positive relationship between earnings and abnormal security returns (e.g., Beaver, 1968, and Beaver, Clark, and Wright. 1979 among others). This result suggests that accounting earnings provi...

SUMMARY: The high-profile collapses during the period 2000 to 2002 resulted in increased litigation against auditors, higher insurance costs, increased media scrutiny, and increased regulatory review of the auditing profession. Prior research suggests that auditors’ decisions were more conservative after this period. We compare auditors’ propensity to issue going-concern opinions before and after 2000–2002. Consistent with increased auditor conservatism, we find that auditors were more likely to issue going-concern opinions to financially stressed companies immediately after the crisis period. The increase in going-concern modifications issued resulted in a few less companies observed to fail without a going-concern modification, but only at the cost of more modifications issued to companies that did not fail. The results do not, however, support continued auditor conservatism beyond 2003.

In order to provide an effective whistle-blowing system, it is expected that companies would provide employees with a high level of disclosure regarding the whistle-blowing process. This study investigates variation in the extent of whistle-blowing disclosures. As a measure of whistle-blowing implementation, this study further examines the provision of a hotline channel. The results suggest that the extent of whistle-blowing disclosures is positively associated with the permissibility of anonymous reporting and organisational support for whistle-blowing, the number of external directors on the audit committee, and the existence of concentrated shareholdings. The mere existence of whistle-blowing disclosures could simply be symbolic. The findings also indicate a greater likelihood of the provision of hotlines when companies are larger in size, have a higher level of current inventory, are cross-listed in the US, and permit anonymous reporting.

This research note examines the impact of client size on the estimation of audit fee premiums in the Australian market for audit services. Previous research suggests that higher audit fees are expected for both larger clients and for industry specialization. We find that in the Australian market for audit services, the fee premium attributed to industry specialist audit firms is concentrated in the audit fees paid by the largest clients in each industry. One reason for higher fees paid by larger clients is the demand for additional audit services. We find higher fees for companies cross-listed on US exchanges. We also find that fee premiums to auditors that are city-industry leaders are strongly related to client size. Copyright (c) The Authors Journal compilation (c) 2007 AFAANZ.

The purpose of this paper is to examine the audit fee premium to the Big 6 brand in the small and large client segments of the market for audit services. We use a sample of Australian fee data for the five‐year period 1995 to 1999. We find evidence of price premiums to Big 6 auditors in the small client segment. We do not find evidence of fee premiums in the large client segment. We also present evidence that audit fees are not linearly related to client size as is typically assumed in audit fee models.

PurposeThis paper aims to examine the effect of audit partner tenure (PARTEN) on client managers' accounting discretion.Design/methodology/approachThe authors contend that, when a new audit partner is from the same audit firm as the outgoing audit partner (audit partner rotation), audit quality increases because the new audit partner brings “fresh eyes” to the engagement.FindingsThe results confirm this conjecture. The authors find that, in the initial years of tenure of a new audit partner, client managers' accounting discretion decreases when the new partner is from the same audit firm as the outgoing partner. However, when the new audit partner is from a different audit firm as the outgoing partner (audit firm rotation), it is found that client managers' accounting discretion increases in those initial years.Originality/valueThe results provide support for recent legislation in the US restricting audit PARTEN and should be of interest to other regulatory bodies contemplating mandatory audit partner rotation.