Authors: Charles A. Malgwi, Emmanuel N. Emenyonu
Addresses: Bentley College, 175 Forest Street, Waltham, MA 02452-4705, USA. ' Southern Connecticut State University, 501 Crescent Street, New Haven, CT 06515, USA
Abstract: This study investigates audit effectiveness (or the lack thereof) of audit opinions issued by auditors preceding company bankruptcies. Data from all 26 bankrupt UK financial institutions were used to determine if auditors appropriately issued opinions other than unqualified, as signs of non-going concern, and any differences in audit-opinion effectiveness between international and domestic audit firms. Results show that unqualified opinions issued was significantly higher than other opinions prior to bankruptcy. While international audit firms were less likely to issue unqualified opinions than their domestic counterparts, no firm issued adverse or disclaimer of opinions in any given year, despite serious warning signals from return on assets (ROA), return on equity (ROE) and current ratios.
Keywords: audit effectiveness; bankruptcy; going concerns; audit opinion; UK financial institutions.
International Journal of Accounting, Auditing and Performance Evaluation, 2004 Vol.1 No.4, pp.503 - 518
Available online: 24 Feb 2005 *Full-text access for editors Access for subscribers Purchase this article Comment on this article