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Audit report qualification/modification

Audit report qualification/modification PurposeThe purpose of this paper is to investigate the influence of financial variables and especially profitability, loss in current year, loss in previous year, leverage and liquidity in predicting audit report qualifications (qualified audit opinion) and audit report modifications (qualified opinion or unqualified but with an explanatory paragraph).Design/methodology/approachThe authors used hand-collected data from financial statements and from auditors’ general reports of 76 non-financial publicly traded companies over a period of 11 years (2005-2015). A total of 545 audit reports were analyzed.FindingsThe results of panel logistic regression reported a positive relationship between liquidity, loss in the current year, loss in the previous year and a qualified audit report. A positive relationship was found between leverage and audit report modification. Also, the findings show that the Tunisian revolution did not affect the qualification or the modification of the audit report but qualifications decreased significantly during the period of the financial crisis.Practical implicationsThe research has practical implications and can help auditors in identifying factors motivating audit report qualification or audit report modification, mainly in periods of instability.Originality/valueThis study contributes to auditing research, since the authors know very little about the determinants of audit opinion in emerging and African markets. It constitutes an addition to previous knowledge about audit opinion in the context of Tunisia during two important periods: the financial crisis and revolution. This research is one of the rare studies analyzing qualifications and audit report modifications by considering both qualifications and explanatory paragraphs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting in Emerging Economies Emerald Publishing

Audit report qualification/modification

Journal of Accounting in Emerging Economies , Volume 7 (4): 18 – Nov 6, 2017

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2042-1168
DOI
10.1108/JAEE-10-2016-0092
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to investigate the influence of financial variables and especially profitability, loss in current year, loss in previous year, leverage and liquidity in predicting audit report qualifications (qualified audit opinion) and audit report modifications (qualified opinion or unqualified but with an explanatory paragraph).Design/methodology/approachThe authors used hand-collected data from financial statements and from auditors’ general reports of 76 non-financial publicly traded companies over a period of 11 years (2005-2015). A total of 545 audit reports were analyzed.FindingsThe results of panel logistic regression reported a positive relationship between liquidity, loss in the current year, loss in the previous year and a qualified audit report. A positive relationship was found between leverage and audit report modification. Also, the findings show that the Tunisian revolution did not affect the qualification or the modification of the audit report but qualifications decreased significantly during the period of the financial crisis.Practical implicationsThe research has practical implications and can help auditors in identifying factors motivating audit report qualification or audit report modification, mainly in periods of instability.Originality/valueThis study contributes to auditing research, since the authors know very little about the determinants of audit opinion in emerging and African markets. It constitutes an addition to previous knowledge about audit opinion in the context of Tunisia during two important periods: the financial crisis and revolution. This research is one of the rare studies analyzing qualifications and audit report modifications by considering both qualifications and explanatory paragraphs.

Journal

Journal of Accounting in Emerging EconomiesEmerald Publishing

Published: Nov 6, 2017

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