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The Relationship between Auditor Opinion and Financial Distress
Hsu - Ling Chang,
Ph.D Student
Yahn - Shir Chen, Associate Professor
ABSTRACT. This study was inspired by the interest of legislators and regulators about the importance and frequency of auditors issuing going-concern modified report to financial distressed companies. I focused on distressed companies since the financial difficulties make errors more likely and increase the likelihood of user losses. The analysis examined the relationship between the probability of financial distress and the receiving a going-concern modified report. 58 firms filed for financial distress was matched with 58 non-distressed firms are examined in this paper. The empirical tests indicated that financially distressed companies that are most likely to receive a going-concern modified report, ceteris paribus, compared to non-distressed companies. This suggests auditors are more likely to maintain professional attitude in rendering their audit opinion when firms are distressed.
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