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Title
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Investor reaction to auditors' going concern emphasis of matter : evidence from a natural experiment
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Author
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Abstract
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| Using a “natural experiment” provided by a change in Canadian auditing standards requiring an emphasis of matter paragraph in the auditor's report (GC-EOM) when the financial statements include a going concern uncertainty disclosure (GC-FS), this paper examines the incremental investor reaction to the auditor's report over the related GC-FS. Conditioning on the linguistic severity of the GC-FS (weak and severe), we first document a negative price response to severe but not to weak GC-FS before the regulatory change. This implies that investors react to financial statement disclosures and account for their degree of interpretability in the absence of a GC-EOM. When the uncertainty disclosure is accompanied by a GC-EOM, we find incremental negative abnormal returns and lower abnormal trading volume only for weak GC-FS. Collectively, these findings imply that an emphasis of matter paragraph in the auditor's report can have incremental value to investors. |
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Language
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English
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Source (journal)
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Auditing : a journal of practice and theory. - Sarasota, Fla, 1981, currens
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Publication
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Sarasota, Fla
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2019
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ISSN
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0278-0380
1558-7991
[online]
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DOI
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10.2308/AJPT-52155
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Volume/pages
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38
:2
(2019)
, p. 27-55
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Full text (Publisher's DOI)
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