The Effects of a Qualified Audit Opinion on Investors’ Perceptions and Decisions after the 2008 Financial Crisis

• In Event: Audit Quality, Opinions and Specialization

Abstract

This study extends the previous research on the informative value of a qualified financial statements audit opinion in an integrated audit report after the 2008 financial crisis. A laboratory experiment is conducted with 68 MBA students as a proxy of nonprofessional investors. The result reveals that a qualified opinion has an informative value to investors when integrated with an unqualified opinion on internal control over financial reporting in an audit report. A qualified opinion significantly decreases investors’ willingness to invest in the client. When a qualified opinion is issued, as compared to an unqualified opinion, investors perceive the information related to company growth and return on common stock as less important, which in turn mediates the effects of a qualified opinion on investors’ decisions. With the change of an audit report model and investors’ more conservative attitudes towards audit reporting, the findings have strong implications to accounting researchers and regulators such as SEC and PCAOB.

Authors

• Botao Chen, University of Maryland Eastern Shore

• Xia Zhang, Jackson State University