Opinion Shopping to Avoid a Going Concern Audit Opinion and Subsequent Audit Quality

48 Pages Posted: 31 May 2018

See all articles by Jong-Hag Choi

Jong-Hag Choi

Seoul National University - College of Business Administration

Heesun Chung

Sejong University - School of Business

Catherine Heyjung Sonu

Korea National Open University - Department of Finance and Service Business

Yoonseok Zang

Singapore Management University - School of Accountancy

Date Written: May 20, 2018

Abstract

Despite regulatory concerns over opinion shopping (OS) behavior, there exists little systematic evidence on the prevalence and consequences of OS to avoid a going concern opinion (GCO) in today’s audit environment. Using 11,628 distressed sample firms over the period 2004–2012 and Lennox’s (2000) framework to identify OS, we find that distressed firms successfully engage in OS to avoid a GCO. Moreover, clients engaging in OS exhibit a higher ex post Type II error rate in audit opinions than clients that do not, and the higher Type II error rate is salient for clients switching auditors for OS but not for clients retaining auditors for OS. We continue to find this asymmetric effect of the two types of OS on audit quality measured by restatements. These results indicate that auditor switching for OS not only results in a higher likelihood of audit reporting failures but also impairs other dimensions of audit quality, while auditor retaining for OS has little adverse effects on audit quality.

Keywords: Opinion Shopping, Auditor Switch, Type II Errors, Audit Quality

JEL Classification: M41, M42

Suggested Citation

Choi, Jong and Chung, Heesun and Sonu, Catherine Heyjung and Zang, Yoonseok, Opinion Shopping to Avoid a Going Concern Audit Opinion and Subsequent Audit Quality (May 20, 2018). Auditing: A Journal of Practice & Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3182103

Jong Choi (Contact Author)

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Heesun Chung

Sejong University - School of Business ( email )

Seoul
Korea, Republic of (South Korea)

Catherine Heyjung Sonu

Korea National Open University - Department of Finance and Service Business ( email )

86 Daehakro Jongrogu
Seoul, 03087
Korea, Republic of (South Korea)

HOME PAGE: http://faculty.knou.ac.kr/~hjsonu/

Yoonseok Zang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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