The Relationship Between the Reputation of Audit Offices and the Accuracy of the Opinion on Continuity and the Extent to Which it is Affected by the Financial Failure Field Research in the Iraqi Stock Exchange

Authors

DOI:

https://doi.org/10.26668/businessreview/2022.v7i2.425

Keywords:

Reputation of the Auditor's Office, Accuracy of the Auditor's Opinion on Business Continuity, Financial Failure

Abstract

Purposes: The purpose of the research is to test the relationship between the reputation of the auditor's office and the accuracy of his opinion on continuity and the impact of that relationship on the financial failure of the client company.

 

Theoretical framework: Studying the impact of the financial failure of the client company as an intermediate variable. Where some control variables are included, these were addressed through previous studies through a sample of companies listed on the Iraqi stock market (2017-2020) based on the binary logistic regression model to test the research hypotheses.

 

Methodology/ Design Approach: Relying on the binary logistic regression model to test and conducting additional analysis to test the research hypotheses.

 

Results: The results of the research indicated that there is a positive and significant impact of the reputation of the audit firms on the accuracy of their opinion on the continuity hypothesis, as well as the positive impact of the accuracy of the opinion of the Supreme Audit Bureau in the supervision of the auditors of the Bureau, and there is a positive and important impact of the variable of financial default as an intermediary variable between reputation the auditor's office and the accuracy of his opinion on continuity. Finally, the results of the analysis support the positive correlation of the effect of financial failure as a control variable on the accuracy of his opinion on going concern.

 

Research and practical and social effects: The social effects of research appear by studying the reputation of the auditor and its impact on the continuity or failure of companies listed in the Iraqi Stock Exchange.

The value of originality: The research represents a qualitative addition to the research that examined the auditor’s reputation variables and their impact on the continuity of companies.

Downloads

Download data is not yet available.

References

Abad, D., Sánchez‐Ballast, J. P., & Yagüe, J. (2017). Audit opinions and information asymmetry in the stock market. Accounting & finance, 57(2), 565-595.

Abid, A., Shaique, M., & Anwar ul Haq, M. (2018). Do big four auditors always provide higher audit quality? Evidence from Pakistan. International Journal of Financial Studies, 6(2), 58.

Aldred. C. (2002). Auditors’ E&O costs add up, Business Insurance ,36(5), 3-4

Altman, E. I., Haldeman, R. G., & Narayanan, P. (1977). ZETATM analysis a new model to identify bankruptcy risk of corporations. Journal of banking & finance, 1(1), 29-54.

American Institute of Certified Public Accountants (AICPA), (1988). Statement on Auditing Standards No. 59. The Auditor’s Consideration of an Entity’s Ability to Continue as a Continuity. AICPA, New York, NY.

Arifah, D. A., & Wijayanti, S. D. (2014). The Influence 0f Company Characteristics and Auditor Reputation toward the Acceptance of Continuity Audit. Available At: http://Research.Unissula.Ac.Id/File/Publikasi/211406020/7645ifma-Bali-Dista.Pdf.

Aronmwan, E., Ashafoke, T., & Mgbame, C. (2013). Audit firm reputation and audit quality. European Journal of Business and Management,

Averio, T (2020). The analysis of influencing factors on the continuity audit opinion–a study in manufacturing firms in Indonesia. Asian Journal of Accounting Research, Available: https://www.emerald .com/insight/content/doi/10.1108/AJAR-09-2020-0078/full/html.

Berglund, N. R. (2020). Do client bankruptcies preceded by clean audit opinions damage auditor reputation? Contemporary Accounting Research, 37(3), 1914-1951.

Berglund, N. R., Eshleman, J. D., & Guo, P. (2018). Auditor size and continuity reporting. Auditing: A Journal of Practice & Theory, 37(2), 1-25.

Bergner, J., Marquardt, B. B., & Mohapatra, P. (2020). The auditor reputation cycle: A synthesis of the literature. International Journal of Auditing, 24(2), 292-319.

Blum, E. S., Hatfield, R. C., & Houston, R. W. (2021). The Effect of Staff Auditor Reputation on Audit Quality Enhancing Actions. The Effect of Staff Auditor Reputation on Audit Quality Enhancing Actions. The Accounting Review.

Carson, E., Fargher, N. L., Geiger, M. A., Lennox, C. S., Raghunandan, K., & Willekens, M. (2013). Audit reporting for going-concern uncertainty: A research synthesis. Auditing: A Journal of Practice & Theory, 32(Supplement 1), 353-384.

Dan Nengzih, T. M. W. (2021). The Effect of Auditor Reputation, Prior Audit Opinion, Company Growth, Leverage and Liquidity on the Continuity Audit Opinion Acceptance with Audit Switching as Moderating Variable, International Journal of Innovative Science and Research Technology, Volume 6, Issue 4.

DeAngelo, L. (1981). Auditor size and audit quality, Journal of Accounting and Economics, 3(3), 183-199.

Desai, V., Desai, R., Kim, J. W., & Raghunandan, K. (2020). Are going‐ concern issues disclosed in audit reports associated with subsequent bankruptcy? Evidence from the United States. International Journal of Auditing, 24(1), 131-144.

El-Dyasty, M. M., & Elamer, A. A. (2021). The effect of auditor type on audit quality in emerging markets: evidence from Egypt. International Journal of Accounting & Information Management. Vol. 29, No. 1, pp. 43-66.

Financial Reporting Council, (2014). Guidance on risk management, internal control and related financial and business reporting’s. London, UK, FRC.

Financial Reporting Council, (2018). Investigation into the audit of the financial statements of Carillion plc. London, UK, FRC. Available at: https://www.frc.org.uk/news/january-2018-(1)/investigationinto-the-audit-of-the-financial-stat.

Fuerman R. D., & Kraten, M. (2008).Intra Non-Big Four-Audit Quality. Retrieved from www.aaahq.org. Geiger, M. A., & Rama, D. V. (2006). Audit firm size and going‐concern

George-Silviu, C., & Melinda-Timea, F. (2015). New audit reporting challenges: auditing the continuity basis of accounting. Procedia Economics and Finance, 32, 216-224.

Gunn, J. L., Li, C., Liao, L., Yang, J., & Zhou, S. (2019). Audit firms’ corporate social responsibility activities and auditor reputation. Working Paper. Available at: http://www. rieb. Kobe-u. Ac. jp/tjar/conference/10th/CF3_Chan% 20Li. pdf.

Hapsoro, D., & Santoso, T. R. (2018). Does Audit Quality Mediate the Effect of Auditor Tenure, Abnormal Audit Fee and Auditor’s Reputation on Giving Continuity Opinion? International Journal of Economics and Financial, 8(1), 143-152.

Hapsoro, D., & Suryanto, T. (2017). Consequences of continuity opinion for financial reports of business firms and capital markets with auditor reputation as a moderation variable: an experimental study. European Research Studies Journal, 20(2A), 197-223.

Hardies, K., Vandenhaute, M. L., & Breesch, D. (2018). An analysis of auditors' going-concern reporting accuracy in private firms. Accounting Horizons, 32(4), 117-132.

HS, W. H., & AZ Zahra, A. S. (2020). Analysis of the Reputation Factor Auditor, Disclosure, and Audit Client Tenure to Audit Opinion Continuity on Manufacturing Companies in Indonesia, IOSR Journal of Business and Management (IOSR-JBM), Volume 21, Issue 12. Series. II, PP 80-89.

International Auditing and Assurance Standards Board (IAASB), 2010. ISA 315. Identifying and assessing the risks of material misstatement through understanding the entity and its environment. New York, NY.

Ji, G., & Lee, J. (2015). Managerial Overconfidence and Going - Concern Modified Audit Opinion Decisions. The Journal of Applied Business Research, 31(6), 2123- 2138.

Kaplan, S. E., & Williams, D. D. (2013). Do continuity audit reports protect auditors from litigation? A simultaneous equations approach. The Accounting Review, 88(1), 199-232

Kausar, A., Taffler, R. J., & Tan, C. E. (2017). Legal regimes and investor response to the auditor’s going-concern opinion. Journal of Accounting, Auditing & Finance, 32(1), 40-72.

Mareque, M., López-Corrales, F., & Pedrosa, A. (2017). Audit reporting for continuity in Spain during the global financial crisis. Economic research-Ekonomska istraživanja, 30(1), 154-183.

Mayhew, B. W. (2001). Auditor reputation building. Journal of Accounting Research, 39(3), 599-617.

McKenna, F., Pevsner, M., Sheneman, A., & Zach, T. (2020). Economic Consequences of Auditor Reputation Loss: Evidence from the Auditor Inspection Scandal. Available at SSRN: https://ssrn.com/abstract= 3715005 or http://dx.doi.org/10.2139/ssrn.3715005.

Nogler, G. E. (2008). Continuity modifications, CPA firm size, and the Enron effect. Managerial Auditing Journal. 23(January):51-67.

Nurmala, P., Meisnawati, M., & Thrang, N. T. (2020). Effect of Auditor Client Tenure, Company Growth, Auditor Reputation, and Leverage of Opinion Audit Continuity. EAJ (Economic and Accounting Journal), 3(3), 172-184.

PCAOB, (2015). Consideration of an entity’s ability to continue as a continuity. Auditing Standard No. 2415. Washington, DC: PCAOB.

PCAOB, (2017). AS 3101: The Auditor’s Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion.

PCAOB, Washington, D.C. PCAOB, (2019). Quality control concept release. Available at: https://pcaobus. Org/News/Releases/Pages/fact-sheet-quality control-concept release .aspx.

Qi, B. L., Li, A., Robin, and Yang, R. (2017). Can enforcement actions on engagement auditors improve audit quality? Working paper, Xi’an Jiao tong University and Rochester Institute of Technology.

Rama, F., & Zukerman, S. (2018). The determinants that affect the acceptance of continuity audit opinion with auditor reputation as a moderating variable. Accounting Analysis Journal, 7(2), 87-94.

Rama, R. S., Sutrisno, T., Saraswati, E., & Raman, A. F. (2020).Debasing Halo Effect: Auditor Reputation and the Role of Auditing Learning on Financial Statements User Trust. International Research Journal of Management, IT and Social Sciences, 7(6), 33-41.

Rickling, M. F., Bitter, M. E., & West, J. (2020). Going-Concern Decision and the Global Financial Crisis. International Journal of Business, 25(1), 21-44.

Sanoran, K. L. (2018). Auditors’ continuity reporting accuracy during and after the global financial crisis. Journal of Contemporary Accounting & Economics, 14(2), 164-178.

Skinner, D. J., & Srinivasan, S. (2012). Audit quality and auditor reputation: Evidence from Japan. The Accounting Review, 87(5), 1737-1765.

Tangpinyoputtikhun, Y., & Thammavinyu, C. (2010). The Impact of Professional Knowledge and Personal Ethics on Audit Quality and Sustainable Reputation of Thai-Public Accountants. J. Acad. Bus. Econ., 10 (2).

Woudenberg, Jan & van der Hel, Lisette & Kamerling, Robert. (2019). Company Management’s and Auditor’s Reporting on Continuity: Discussion of the Current International Regulatory Framework. International Journal of Accounting and Financial Reporting. Vol. 9, No. 2.

Downloads

Published

2022-08-30

How to Cite

Sabti, A. A. A. A. ., & Anssari, M. A. A. . (2022). The Relationship Between the Reputation of Audit Offices and the Accuracy of the Opinion on Continuity and the Extent to Which it is Affected by the Financial Failure Field Research in the Iraqi Stock Exchange. International Journal of Professional Business Review, 7(2), e0425. https://doi.org/10.26668/businessreview/2022.v7i2.425