The Impact of Religion on the Going Concern Reporting Decisions of Local Audit Practice Offices
Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy
Nathan Y. Sharp
Texas A&M University - Department of Accounting
Texas A&M University
We extend research on the effects of local audit practice office characteristics on audit quality by investigating whether audit offices in highly religious U.S. Metropolitan Statistical Areas (MSAs) exhibit going concern decisions that are systematically different from audit offices in less religious MSAs. Prior research links religiosity to risk aversion and suggests audit practice offices in more religious MSAs could be more likely to resist client pressure to withhold going concern opinions because of aversion to litigation risk. However, prior research also indicates that religion is an important element of social identity; therefore, audit offices in more religious areas may be more likely to acquiesce to a client-preferred position if religion creates social connections between auditors and their clients or helps auditors better identify with their clients. Our results indicate that audit practice offices located in highly religious MSAs are more likely to issue going concern audit opinions. Additional tests provide direct evidence consistent with the argument that these audit offices are more risk averse in issuing going concern opinions. In addition, we find that they issue going concern reports with greater bankruptcy prediction accuracy. Our findings are relevant to auditors, audit clients, researchers, and regulators.
Number of Pages in PDF File: 58
Keywords: going concern opinions, audit quality, religion, social identity
JEL Classification: M41, M42, Z12
Date posted: August 24, 2010 ; Last revised: May 21, 2014
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