Audit Quality and the Going Concern Decision Making Process: Spanish Evidence

Posted: 5 Oct 2004

Abstract

In this study, we attempt empirically to investigate the relationship between audit quality and the probability that a financially distressed company would receive a going concern opinion. Auditor decision-making in the presence of going concern uncertainties may be characterized as a two-stage process. The first stage is the identification of a potential going concern problem and the second stage is to determine whether the particular company should receive a qualified going concern opinion. A sample of 1,199 non-financial Spanish company-years has been obtained from the database issued by the Stock Exchange National Commission for the fiscal years ending between December 1991 and December 2000. The results indicate that audit quality (measured by the auditor's level of independence and knowledge) affects the probability that a financially distressed company would receive a going concern opinion. This probability is influenced not only by the auditor's ability to detect financial uncertainties, but also by the auditor's decision-making as to what type of opinion should be finally issued.

Keywords: Going concern, bankruptcy, audit quality, auditor independence, audit opinion, auditor knowledge

JEL Classification: M49, G33, M47

Suggested Citation

Gómez Aguilar, Nieves and Ruiz-Barbadillo, Emiliano and de Fuentes Barbera, Cristina and Garcia Benau, Maria Antonia, Audit Quality and the Going Concern Decision Making Process: Spanish Evidence. Available at SSRN: https://ssrn.com/abstract=599724

Nieves Gómez Aguilar

University of Cadiz ( email )

Cadiz
Spain

Emiliano Ruiz-Barbadillo (Contact Author)

University of Cadiz ( email )

Cadiz
Spain

Cristina De Fuentes Barbera

University of Valencia ( email )

E-46022 Valencia, Valencia E-46022
Spain

Maria Antonia Garcia Benau

University of Valencia ( email )

E-46022 Valencia, Valencia E-46022
Spain

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