Auditors’ Propensity and Accuracy in Issuing Going-Concern Modified Audit Opinions for Charities

Abstract

This paper identifies the factors which impact auditors’ propensity to issue going concern modified audit opinions (GCOs) and examines their accuracy in issuing such opinions for charities by comparing with two outcomes, cancellation of ABN status and the revoking of operating status on the ACNC database. We find that GCOs are more likely for charities which are smaller, in greater financial distress, received a prior year GCO, had smaller proportion of donation income and had economic dependence on subsequent funding. Big 4 auditors are less likely to issue GCOs, but they do not show significant differences in GCO reporting mis-classification.

Keywords: Going Concern; Charity; Audit Quality; Auditor Reporting

JEL Classification: M42