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Credit ratings and audit opinion: evidence from Tunisia

Credit ratings and audit opinion: evidence from Tunisia The purpose of this paper is to examine whether credit ratings issued by Fitch predict auditor’s opinion for the Tunisian financial companies. It studies the association between Fitch’s credit rating and the audit opinion.Design/methodology/approachThe whole population was analyzed. It is composed of 35 banks, leasing companies and factoring companies in Tunisia. The hand-collected data over 11 years (2005–2015) were used and a multiple-ordered logistic regression was performed.FindingsThe findings show that firms with a high short-term grade, a high long-term grade or a positive outlook are more likely to receive an unqualified audit opinion. In addition, companies with a stable outlook are more likely to receive an explanatory paragraph, a qualification or a going-concern opinion.Originality/valueStudies examining the relationship between credit ratings and audit opinion are rare. This piece of research adds to knowledge about the relationship between different components of agency ratings and the auditor’s opinion in a developing country. Previous studies have investigated the case of developed countries and have been interested in the only impact of the long-term credit rating. This study analyzes three components of credit rating, namely long-term credit rating, short-term credit rating and rating outlook. In addition, it sheds light on the effect of various rating grades issued by rating agencies on the audit opinion. It gives a broader view of the relationship between credit ratings and audit opinion. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting in Emerging Economies Emerald Publishing

Credit ratings and audit opinion: evidence from Tunisia

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References (54)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2042-1168
DOI
10.1108/jaee-03-2018-0022
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to examine whether credit ratings issued by Fitch predict auditor’s opinion for the Tunisian financial companies. It studies the association between Fitch’s credit rating and the audit opinion.Design/methodology/approachThe whole population was analyzed. It is composed of 35 banks, leasing companies and factoring companies in Tunisia. The hand-collected data over 11 years (2005–2015) were used and a multiple-ordered logistic regression was performed.FindingsThe findings show that firms with a high short-term grade, a high long-term grade or a positive outlook are more likely to receive an unqualified audit opinion. In addition, companies with a stable outlook are more likely to receive an explanatory paragraph, a qualification or a going-concern opinion.Originality/valueStudies examining the relationship between credit ratings and audit opinion are rare. This piece of research adds to knowledge about the relationship between different components of agency ratings and the auditor’s opinion in a developing country. Previous studies have investigated the case of developed countries and have been interested in the only impact of the long-term credit rating. This study analyzes three components of credit rating, namely long-term credit rating, short-term credit rating and rating outlook. In addition, it sheds light on the effect of various rating grades issued by rating agencies on the audit opinion. It gives a broader view of the relationship between credit ratings and audit opinion.

Journal

Journal of Accounting in Emerging Economies – Emerald Publishing

Published: Mar 18, 2019

Keywords: Audit opinion; Long-term rating; Panel-ordered logistic regression; Rating outlook; Short-term rating

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