The predictive ability of audit report going-concern uncertainty narratives

Bellotti, Xijuan and Uang, Jinn-Yang and Citron, David B. and Taffler, Richard (2010) The predictive ability of audit report going-concern uncertainty narratives. Auditing: a journal of practice and theory . ISSN 0278-0380 (Submitted (DO NOT USE - ineligible for repository))


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This paper tests the information content of the audit going-concern opinion in terms of whether the narrative itself can predict the nature of subsequent distress resolution. This important issue has received limited attention to date. Using a formal content analysis approach, we find that the tone of the narrative, as represented by the relative proportion of negative to positive keywords, is highly predictive of the severity of subsequent outcome. We also find a binary variable measuring simple word count has some predictive ability. The auditor’s going-concern opinion wording provides credible information to financial statement users on this basis. Our results emphasise the importance of allowing free-form narrative in the audit report in this particular adverse audit situation, compared with restricting the auditor to essentially a boilerplate formulation.

Item Type:Article
Research Areas:A. > Business School > Accounting and Finance
A. > School of Science and Technology > Psychology
ID Code:4266
Deposited On:01 Mar 2010 15:04
Last Modified:27 Feb 2015 19:43

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