Location of Repository

Do industry specialists and business risk auditors enhance audit reporting accuracy?.

By Liesbeth Bruynseels, WR Knechel and Marleen Willekens


A number of prior studies have examined audit reporting quality using size (Big 8/6/5/4) as a proxy for quality (i.e. Lennox, 1999b; Francis and Krishnan, 1999; Weber and Willenborg, 2003). In this paper we move beyond the traditional definition of a high quality auditor, and investigate whether enhanced industry knowledge or an increased focus on business risk auditing methodologies improve audit reporting accuracy. In addition, we examine whether industry specialists and business risk auditors have a comparative advantage in judging the adequacy of mitigating management actions implemented by financially distressed companies. Using a sample of US companies from manufacturing industries (SIC 20-39) that went bankrupt between 1998-2001, we do not find evidence supporting that specialist auditors are more likely to issue a going concern opinion for companies that subsequently go bankrupt. However, our evidence does indicate that specialists are not fooled by operating initiatives (whereas non-specialists are). Interestingly and counter to our expectations, we find that audit firms using a business risk methodology are less likely to issue a going–concern opinion for a firm that subsequently goes bankrupt. Further, our evidence also suggests that business risk auditors may be 'fooled' by short term operating efforts to reduce financial distress. Finally, we also find very strong evidence that auditors, irrespective of their type, are 'fooled' into not issuing a going concern opinion for clients that subsequently go bankrupt when the client is planning on raising cash in the short term.Behavior; Control; Cost; Exchange; Information; Negotiations; Performance; Power; Research; Theory; Law; Effects; Trade; Flows; Country; Intensity; Imports; Import; United States; Trade liberalization; Industry; Industries; Business; Risk; Reporting; Studies; Quality; Size; Knowledge; Auditing; Comparative advantage; Management; Companies; Manufacturing; Firms; Planning;

OAI identifier:

Suggested articles



  1. Allied Products
  2. (1996). An Analysis of Multinational "Audit Failures",
  3. (2005). Audit committee composition and the use of an industry specialist audit firm, Accounting &
  4. (1992). Default on debt obligations and the issuance of goingconcern opinions,
  5. (2003). Does Big 6 auditor industry expertise constrain earnings management?, Accounting Horizons, Supplement,
  6. (2002). Error detection by industry-specialized teams during sequential audit review,
  7. (2001). Further Evidence on the Auditor's Going-Concern Report: The Influence of Management Plans, Auditing: A Journal of Practice
  8. Instruments and Related Products
  9. Minimum Maximum Dependent variable NO_GCO
  10. Miscellaneous Plastic Products
  11. (1997). The effect of industry specialization on hypothesis generation and audit planning decisions,
  12. (2003). The effects of firm-wide and office-level industry expertise on audit pricing,
  13. (2003). The endogenous relationship between audit-report type and business termination: evidence on private firms in a non-litigious environment,
  14. (2004). The Impact of Strategic-Positioning Information on Auditor Judgments about Business-Process Performance, Auditing: A
  15. (1997). The influence of contrary information and mitigating factors on audit opinion decisions on audit opinion decisions on bankrupt companies,
  16. (1991). Towards an explanation of auditor failure to modify the audit opinion of bankrupt companies, Auditing:

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.