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Market reactions to qualified audit reports: research approaches

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  • Kim Ittonen

Abstract

Purpose - The purpose of this paper is to review the archival literature on market reactions to qualified audit reports and to seek to identify the different approaches used in those studies. In addition, the paper discusses the strengths and weaknesses of different approaches, summarizes key findings, and provides suggestions for future research. Design/methodology/approach - The paper reviews articles examining the relevance of qualified audit reports published between 1972 and 2010. Findings - First, the review suggests that there are three main approaches used in the literature: the short‐window approach, the long‐window approach, and the indirect approach. Each approach has both strengths and significant weaknesses that should be acknowledged. Second, as a whole the empirical findings in this area are mixed. A more detailed analysis reveals that only the indirect approach has consistently found support for the relevance of qualified audit reports. Research limitations/implications - This paper shows that in future, researchers in this area should strive to identify the correct information release date, because it is the most critical step in conducting event studies. In addition to the event date identification, the effect of simultaneous information releases during the event period must be considered. Last, it is suggested that researchers include other stock market measures besides abnormal returns in their analysis, because measures like change in volatility, volume, bid‐ask spread, and systematic risk could provide information that abnormal returns do not offer. Originality/value - This paper provides a review of the current state of knowledge on whether audit reports convey new information to the stock markets.

Suggested Citation

  • Kim Ittonen, 2012. "Market reactions to qualified audit reports: research approaches," Accounting Research Journal, Emerald Group Publishing Limited, vol. 25(1), pages 8-24, July.
  • Handle: RePEc:eme:arjpps:v:25:y:2012:i:1:p:8-24
    DOI: 10.1108/10309611211244483
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    Citations

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    Cited by:

    1. Alessandro Mechelli & Riccardo Cimini, 2017. "Do (Audit Firm and Key Audit Partner) Rotations Affect Value Relevance? Empirical Evidence from the Italian Context," International Business Research, Canadian Center of Science and Education, vol. 10(1), pages 143-152, January.
    2. Kalinga Jagoda & Patrick Wojcik, 2019. "Implementation of risk management and corporate sustainability in the Canadian oil and gas industry," Accounting Research Journal, Emerald Group Publishing Limited, vol. 32(3), pages 381-398, September.
    3. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    4. Romlah Jaffar & Nor Asyiqin Abu & Mohamat Sabri Hassan & Mohd Mohid Rahmat, 2023. "Value Relevance of Board Attributes: The Mediating Role of Key Audit Matter," IJFS, MDPI, vol. 11(1), pages 1-21, February.
    5. Oana-Marina BATAE, 2019. "Expanded Audit Reports and Audit Fees – A Content Analysis on the Romanian Banking Sector," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 17(156), pages 653-653.
    6. Martinez-Blasco, Monica & Garcia-Blandon, Josep & Vivas-Crisol, Laura, 2016. "El informe de auditoría con salvedades: ¿una mayor independencia y competencia del auditor aumenta su contenido informativo?," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(1), pages 89-101.
    7. Nicolás Gambetta & Laura Sierra García & María Antonia García Benau & Josefina Novejarque Civera, 2022. "The informative value of Key Audit Matters in the audit report," Documentos de Investigación 129, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.

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