Auditors’ Responses to Asset Redeployability

54 Pages Posted: 18 Mar 2020

See all articles by Ferdinand A Gul

Ferdinand A Gul

Deakin University

Karen Lai

Deakin University; Deakin University, Faculty of Business and Law, Deakin Law School, Students

Tongxia Li

Deakin University

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Date Written: November 13, 2019

Abstract

This study shows that auditors are more likely to charge higher audit fees, issue false-positive going concern opinions (i.e., Type I error), and resign from high asset redeployability (AR) firms. In supplemental tests, we use path analysis to show that the significant associations between AR and auditor responses can be explained by higher inherent risk (earnings management and abnormal asset sales) and audit business risk (misstatements and litigation risk). Collectively, our results suggest that auditors tend to react conservatively when firms are associated with high AR.

Keywords: asset redeployability; earnings management, asset sales, business risk, auditor responses

JEL Classification: G31, M41, M42

Suggested Citation

Gul, Ferdinand A and Lai, Karen and Li, Tongxia and Pittman, Jeffrey A., Auditors’ Responses to Asset Redeployability (November 13, 2019). Available at SSRN: https://ssrn.com/abstract=3543067 or http://dx.doi.org/10.2139/ssrn.3543067

Ferdinand A Gul

Deakin University ( email )

Australia

Karen Lai (Contact Author)

Deakin University

221 Burwood Highway
Victoria, Victoria 3125
Australia

Deakin University, Faculty of Business and Law, Deakin Law School, Students ( email )

221 Burwood Highway
Burwood, Victoria
Australia

Tongxia Li

Deakin University ( email )

221 Burwood Highway
Burwood
Burwood, Victoria 3125
Australia

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

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