Audit firm size and going-concern reporting accuracy Article

Geiger, MA, Rama, DV. (2006). Audit firm size and going-concern reporting accuracy . 20(1), 1-17. 10.2308/acch.2006.20.1.1

cited authors

  • Geiger, MA; Rama, DV

fiu authors

abstract

  • Prior research suggests that the Big 4 audit firms are of higher quality than are non-Big 4 firms. However, existing tests for an association between audit firm size and reporting accuracy are indirect and provide mixed results. Our study extends this line of research by examining whether the Big 4 audit firms exhibit higher quality reporting by having fewer "audit-reporting errors" in the context of issuing going-concern modified reports. Our analyses examine both types of going-concern reporting errors (i.e., type I errors - modified opinions rendered to subsequently viable clients; and type II errors - unmodified opinions rendered to subsequently bankrupt clients) over an 11-year period. We also examine reporting error rate differences between the national second-tier firms and regional /local third-tier firms. Our findings indicate that both type I and type II error rates for Big 4 audit firms are significantly lower compared to non-Big 4 firms. In contrast, we find no significant differences between the national second-tier and regional/local third-tier audit firms with respect to either type of reporting error. Our results provide evidence about a Big 4 audit quality difference in reporting on client's going-concern problems.

publication date

  • March 1, 2006

Digital Object Identifier (DOI)

start page

  • 1

end page

  • 17

volume

  • 20

issue

  • 1