THE INFORMATIVENESS OF GOING CONCERN OPINION: EVIDENCE FROM ITALY

ABSTRACT The aim of this paper is to disentangle the relation between GC exception in the Emphasis of Matter of unqualified opinion, modified opinion for GC and the opening of insolvency proceedings. Using a unique hand-collected database on audit opinions of 326 Italian listed companies from 2007 to 2011, we analyze audit opinions first using a GLM with fixed effects and then we test our results adopting a hierarchical model with random effects. First, we find that the probability of opening an insolvency proceeding is higher following a modified opinion for GC than after a GC exception in the Emphasis of Matter of an unqualified opinion. Second, we identify a positive and significant relationship between a GC exception reported in the Emphasis of Matter of unqualified opinion at time (t-1) and a modified opinion for GC at time (t). Overall, the findings suggest that going concern opinions have to be disentangled to really understand the risk of default. Auditors properly perform their monitoring role even if they do not appear to be fully independent in expressing their opinions. This study further investigates the content of audit opinions in a low litigation risk context, adding further insights into auditors' practices. Keywords audit opinion, going concern, independence, default, agency theory, auditors, Italy, low litigation context