Purpose – The purpose of this paper is to examine the association between audit opinion and earnings persistence of listed companies in Thailand from 2004 to 2008. Design/methodology/approach – We use archival data and hand collected data in regression analysis. Content analysis was used to perform decomposition analysis of audit modifications. Findings – Firms receiving modified opinions have lower earnings persistence than firms receiving unqualified opinions, and the degree of earnings persistence varies among types of modifications. We find that firms with a qualified opinion or a disclaimer have lower earnings persistence than firms receiving an unqualified opinion with an emphasis of matter (UEM). However, we find no difference in earnings persistence between firms receiving a qualification and a disclaimer. Content analysis reveals that there is information in certain types of modified opinions with respect to earnings quality. Firms receiving a scope limitation qualification and a going concern disclaimer have lower earnings persistence than firms receiving an UEM due to going concern issues. Research limitations/implications – Audit modifications reflect different degrees of problematic issues in clients’ firms, resulting in different impacts on earnings persistence. Thus, policymakers and regulators should emphasize the importance of using auditors’ reports. Strengthened enforcement by regulators makes individual auditors more aware of reputation risk and more likely to express appropriate audit opinions. Originality/value – We examine a broader set of modified audit opinions than those used in prior research. Our study offers the opportunity to examine the association between earnings persistence and different types of modified opinions, especially a disclaimer, which has been rarely found in prior research.

We examine differences in conservatism between companies audited by Big 4 and non-Big 4 auditors during the financial crisis and post-crisis periods in Thailand. The results indicate a significant increase in conservatism following the Asian financial crisis. Moreover, Big 4 audit clients were more sensitive to bad news than non-Big 4 audit clients, particularly during the crisis period. In the post-crisis period, both Big 4 and non-Big 4 audit clients reported more conservative earnings. Interestingly, we found no significant difference in conservatism between Big 4 and non-Big 4 auditors in the post-crisis period, possibly due to the conscientious adoption of International Accounting Standards, more stringent control by regulatory bodies, and improvements in corporate governance in Thailand.

In this study, we examine a setting in which overreliance on structured materiality guidance leads to less appropriate materiality assessments by auditors, and investigate whether a justification requirement in the absence of accountability mitigates this effect. Results from our experiment show that audit managers make less conservative and less appropriate planning materiality assessments in the presence of structured materiality guidance, but that this detrimental effect is mitigated by the need to justify their judgments. Our study on the joint effect of these two features extends current literature on materiality judgments and has implications for audit practice. Data Availability: Contact the authors.

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The decision usefulness of the direct versus indirect presentation method of a cash flow statement has been a long-standing issue in both practice and accounting research. By capitalizing on comparative advantages of experimental methods, we provide insights into how investors process the information contained in different presentation methods to make cash flow forecasts, especially in the context of various types of nonrecurring items. We predict and find that, when nonrecurring accrued expenses are present, the indirect method leads to lower forecast errors by activating investors’ underlying knowledge structures of operating cash flows in terms of an accrual (versus cash) basis. We also find that, in the presence of nonrecurring cash or nonrecurring accrued revenues, there is no difference in forecast errors between the indirect and direct methods. Moreover, we find that the combination of the direct and indirect methods (the direct-plus-indirect method) leads to lower forecast errors than the direct method, but it does not provide an incremental benefit for forecast accuracy beyond the indirect method. This paper was accepted by Brian Bushee, accounting.