A Multicriterion Decision Support Methodology For Audit Opinions: The Case Of Audit Reports Of Distressed Firms In Turkey

Abstract

The audit report represents the most important part of the audit process and it is the sole communication medium between the auditor and the users of the financial statements. After accounting scandals, auditors’ responsibility for assessing the appropriateness of audit opinions has become the subject of much debate in the auditing profession and considerable research by academics. This increased attention is due to the fact that auditors appear to be reluctant to disclose audit opinions other than unqualified. Indeed, many companies in the year prior to bankruptcy receive an audit report in which going concern uncertainty is not disclosed. The research of this paper is designed to examine the relationship between the type of audit reports and firm failure. Logistic regression analysis is applied to test the model of audit opinion decision with a sample of financially distressed firms operating in manufacturing sector in Istanbul Stock Exchange (ISE) between the period of 1998-2006. The results reveal that the audit opinions of distressed firms indicate the auditors fail to issue appropriate audit opinions one year prior to failure.