Do corporate payouts signal going-concern risk for auditors? Evidence from audit reports for companies in financial distress

Cao, Jian; Kubick, Thomas R.; Masli, Adi

doi:10.1007/s11156-016-0602-0

Cited by 12 publications

(7 citation statements)

References 59 publications

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“…Financial distress had a positive effect on ongoing concern audit opinion. The results of this study are consistent with the research of Soewiyanto (2012) and Cao et al (2017). The sample in this research showed that companies that experience financial distress would get going concern audit opinion.…”

Section: Yenny Watisupporting

confidence: 91%

“…The better the company's financial condition, the less likely the auditor will give a going-concern audit opinion. Soewiyanto (2012) and Cao et al (2017) found a significant positive influence between financial distress and going concern audit opinion.…”

Section: Direct and Indirect Relationship Of Financial Distress On Aumentioning

confidence: 98%

“…Financial distress is a company condition that faces financial difficulties (Cao et al, 2017). In this research, the financial distress variable is proxied by the DER (Debt to Equity Ratio) ratio.…”

Section: Financial Distressmentioning

confidence: 99%

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Auditor Switching: New Evidence from Indonesia

Wati¹

2020

The Indonesian Journal of Accounting Research

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The purpose of this research is to determine the direct influence of KAP size, company size, audit delay, audit tenure, previous year's audit opinion, opinion shopping, financial distress, audit fee, company growth on auditor switching as well as through going concern audit opinion as a mediating variable. The data used in this research are secondary data involving 104 manufacturing companies listed on the Indonesia Stock Exchange for the period 2013-2017. The data used in this study were analyzed using partial least square and carried out with the help of software WarpPLS 5.0. The results show that KAP size, company size, audit delay, audit tenure, financial distress has a negative effect on auditor switching. Previous year's audit opinion, opinion shopping, audit fee, company growth, going concern audit opinion has a positive effect on auditor switching. KAP size, company size, audit delay, audit tenure, previous year's audit opinion, audit fee has a negative effect on ongoing concern audit opinion. Opinion shopping, financial distress, company growth has a positive effect on ongoing concern audit opinion. The result also shows partial mediation of going concern audit opinion on impact KAP size, company size, audit delay, audit tenure, opinion shopping, financial distress, audit fee, company growth on auditor switching. Our findings provide new empirical evidence supporting the profession's arguments that mandatory audit partner rotation is costly to multiple stakeholders, including clients, auditors, and investors.

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Section: Yenny Watisupporting

confidence: 91%

Section: Direct and Indirect Relationship Of Financial Distress On Aumentioning

confidence: 98%

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Auditor Switching: New Evidence from Indonesia

Wati¹

2020

The Indonesian Journal of Accounting Research

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“…The issuance of going concern opinions has also been accepted as a measure of auditor independence and quality throughout the literature (Carey and Simnett 2006;Robinson 2008; DeFond and Zhang 2014; Koh and Lee 2017;Berglund et al 2018). As auditor independence is difficult to assess directly, other common proxies used in the literature have been linked to the characteristics of clients, such as their size (McKeown et al 1991; Aguiar-Díaz and Díaz-Díaz 2015), financial condition (Pratt and Stice 1994;Louwers et al 1999;Muñoz-Izquierdo et al 2017), strategies (Chen et al 2017), corporate payouts (Cao et al 2017), and CEO incentives (Koh and Lee 2017).…”

Section: Line Of Research: Auditor Independence and Audit Qualitymentioning

confidence: 99%

Is the External Audit Report Useful for Bankruptcy Prediction? Evidence Using Artificial Intelligence

Muñoz‐Izquierdo

Miñano

Vargas

et al. 2019

IJFS

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Despite the number of studies on bankruptcy prediction using financial ratios, very little is known about how external audit information can contribute to anticipating financial distress. A handful of papers have shown that a combination of ratios and audit data is significant for predictive purposes, but only one recent paper provided a predictive accuracy of 80% solely by using the disclosures contained in audit reports. This study was complemented by simplifying the analysis of audit reports for prediction purposes and the same predictive accuracy was achieved. By applying three artificial intelligence techniques (PART algorithm, random forest, and support vector machine), the predictive ability of more easily extracted information from the report was examined and a practical implication suggested for each user. Simply by (1) finding the audit opinion, (2) identifying if a matter section exists, and (3) the number of comments disclosed, any user may predict a bankruptcy situation with the same accuracy as if they had scrutinized the whole report. In addition, an extended literature review is included, on previous studies on the interaction between bankruptcy prediction and the external audit information.

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“…When an incident of solvency is the case, there is always alleged failures and complacency on the part of auditors. However, Cao, Jian, Thomas, Kubick, Adi and Masli (2017) posited that it is rather unfortunate that despite decades of auditors efforts to educate their clients as contained in the engagement letter, investors, regulators, shareholders and other stakeholders about the technicalities and limitation of audit, users of financial statements as a product of audit report depicting clean opinions as meaning viability and management probity.…”

Section: Introductionmentioning

confidence: 99%

Insolvency and the Role of Auditors

Owolabi¹,

Uhuaba²

2020

IJRP

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Globally, the understanding of the role of auditors has been a complex phenomenon especially the contents and interpretation of financial statements. The perceived role of auditors in protecting clients interest against fraud, insolvency, and other matters of great concern to the shareholders and other interest groups have been a sensitive discuss that have generated strong debates in the literature. In contributing to this issue and extending the frontiers in this regard, this study examined insolvency and the role of auditors. To achieve the objective of this study, an exploratory research design was adopted, as some journals, periodicals, and other materials related to the topic were reviewed. Consequent to the reviews, the study revealed that signals of insolvency of corporate organization are detectable if the auditors are thorough and exercise professional due diligence and care in carrying out the audit assignments. The study recommended that the international auditing standards (IAS) should consider including in the standards, such sensitive variables as fraud and insolvency for special treatment and reporting in the auditing standards and guidelines. While auditors' independence should not be compromised for whatsoever reasons, the international auditing standards should mandate auditors to conduct a predictive analysis of clients' going-concern health condition diagnostic analyses to give respite and significant comfort and assurance to investors, and other financial statement users who might rely of the auditor's reports in making informed investment decisions.

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Do corporate payouts signal going-concern risk for auditors? Evidence from audit reports for companies in financial distress

Cited by 12 publications

References 59 publications

Auditor Switching: New Evidence from Indonesia

Auditor Switching: New Evidence from Indonesia

Is the External Audit Report Useful for Bankruptcy Prediction? Evidence Using Artificial Intelligence

Insolvency and the Role of Auditors

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