The Information Content of Audit Opinion for Users of Financial Statements

Abstract

In a market economy with frequent changes, audit is an area that can provide some stability at the economic and social lever, even if the economic and financial crises have questioned the audit work and led to a decrease in the trust of the intended users in the auditors work, leading to a distortion of the primary purpose of the financial audit. The article presents the relevant aspects of the evolution of audit reporting, especially on the underlying issues that expressing qualified opinions or disclaimer of opinion. The content of paper includes a review literature, national and international, and a case study that identified and analyzed the qualified opinions expressed in the auditor’s independent reports, after analysis the financial statements of companies listed on the Bucharest Stock Exchange for the period 2015, 2016 and 2017. The entities were grouped on 9 sectors of activity and researched for each industry if the auditors expressed an unqualified opinion or a modified opinion and if the auditor is part of a Big4 company or belongs to another auditor category. The reasons behind the modified opinions were analyzed and grouped according to the frequency of their appearance in the audit reports. The most important conclusion of the case study was that in all cases, the reasons that led to express modified opinions, was detailed in the auditor’s report, this being considered as a reference guide for the future auditor’s missions, as well as, a recommendation for improving the highlighted aspects.

Current Year Audit Opinion and Next Year Audit Fees: Does Family Ownership Matter?

“…Formulating an audit opinion is a complex process that involves evaluating client acceptance or retention decisions, understanding the clients' business, making internal control checks, collecting evidence based on substantive tests of transactions and balances and forming an opinion based on the aggregated results and evidence collected (Felix and Kinney, 1982). Auditor's opinion on the financial statements, which is the final outcome of the audit process, is important from the auditor's, entity managers' and users of financial statements' point of view (Crucean, 2019). Audit reports provide useful information for investors and it was proven that unqualified audit opinion with explanatory paragraph on financial distress and going concern opinion help in reducing information uncertainty (Kaplan et al, 2020).…”

“…Audit reports provide useful information for investors and it was proven that unqualified audit opinion with explanatory paragraph on financial distress and going concern opinion help in reducing information uncertainty (Kaplan et al, 2020). In addition, the reason for modified audit opinion may be a reference for future auditors' missions (Crucean, 2019).…”

“…It is expected that the issuance of a qualified audit opinion implies higher audit risk, which is expected to be held to the future. According to Habib (2013), current year audit opinion is positively associated with next year audit opinion, and it is expected that the reason for modified audit opinions may act a reference for future audit missions (Crucean, 2019). This means that the auditor will consider his prior opinion and the reasons for this qualified opinion when he prepares his proposal of the next year audit fees.…”

“…Auditor's opinion on the financial statements, which is the output of the audit process is important from the auditor's, entity managers' and users of financial statements' point of view, who want to take different investment and credit decisions (Crucean, 2019). Several studies (Tahinakis and Samarinas, 2016;Crucean, 2019;Kaplan et al, 2020) investigated the information content of audit opinion and how it might affect the users of financial statements. Despite the importance of audit report and opinion from the auditor's point of view, up to my knowledge, no prior research investigated the effect of current year audit opinion on auditor's decisions in the future; for instance, the pricing of future audit missions.…”

Business and accounting standards that only support the capitalist interest: Critical thinking with institutional theory

“…The final output of the accounting process is the financial statements, which are structured and systematic reports on the financial position, financial performance and transactions carried out by a reporting entity. The main axes of financial statements are investors (Crucean, 2019;Abadi & Janani, 2013). The main purpose of financial statements presents information on the financial position, budget realization, cash flow, and financial performance of a reporting entity that is useful for users of financial statements in planning work programs, making budgets, and evaluating decisions regarding the allocation of resources.…”