Audit report information content and the provision of non-audit services: Evidence from Spanish lending decisions

Andres Guiral, Emiliano Ruiz, Hyun Jung Choi

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

This study examines whether auditor economic independence affects the information content of going concern audit reports in the European setting. We conduct an experiment where 80 experienced Spanish loan officers from the second largest European commercial bank review a loan request under two lending scenarios: (1) a potential borrower receiving an unqualified but modified going concern opinion, and (2) a potential borrower receiving a qualified going concern opinion. Auditor economic independence, measured by the provision of non-audit services (NAS), is manipulated (absence vs. presence of significant NAS). We find that a qualified going concern audit report is interpreted as a primary warning signal (death penalty). However, the provision of NAS acts as a second order mechanism that only activates loan officers' professional skepticism in the case of an unqualified but modified going concern report scenario. Therefore, we find evidence suggesting that the potential negative impact of a perceived lack of auditor independence depends on the nature of the audit report. Our findings have important implications for the European regulator, which is currently considering establishing an auditor independence regulation framework similar to that in the United States of America.

Original languageEnglish
Pages (from-to)44-57
Number of pages14
JournalJournal of International Accounting, Auditing and Taxation
Volume23
Issue number1
DOIs
Publication statusPublished - 2014 Jan 1

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Audit reports
Lending decisions
Information content
Loans
Going concern
Nonaudit services
Auditors
Going concern opinion
Scenarios
Economics
Auditor independence
Lending
Professional skepticism
Penalty
Commercial banks
Warning
Experiment

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance

Cite this

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Audit report information content and the provision of non-audit services : Evidence from Spanish lending decisions. / Guiral, Andres; Ruiz, Emiliano; Choi, Hyun Jung.

In: Journal of International Accounting, Auditing and Taxation, Vol. 23, No. 1, 01.01.2014, p. 44-57.

Research output: Contribution to journalArticle

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