How do auditors perceive and respond to client firms’ technological peer pressure? Evidence from going-concern opinions

Date
2018-08-30
Authors
Xu, Xiaolu
Yang, Leo
Zhang, Joseph
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Abstract
We examine how the technological aspect of competition (or technological peer pressure) affects the likelihood that auditors issue going-concern opinions. We find that a client firm’s technological peer pressure increases the likelihood that the firm receives a going-concern opinion. This finding is consistent with the notion that the perceived auditor business risk increases with client technological peer pressure so that auditors are more likely to issue going-concern opinions to such clients. Further evidence shows that this positive effect is more pronounced for client firms with greater innovation originality, that are financially constrained, and for auditors facing higher litigation risk. We also find that technological peer pressure reduces the probability of both Type I and Type II misclassifications when auditors exert more effort. Additional analyses show that client firms’ technological peer pressure positively affects the likelihood of using auditors specialized in auditing R&D. Taken together, our study implies that auditors exert more effort to increase audit quality in response to the higher auditor business risk induced by clients’ technological peer pressure, instead of simply being conservative.
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Technological peer pressure, Going-concern opinions, Audit opinion accuracy
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