The influence of contrary information and mitigating factors on audit opinion decisions on bankrupt companies

A study was conducted to examine the impact of contrary information and mitigating factors on audit opinion decisions regarding companies on the verge of bankruptcy. Contrary information is defined as information challenging the further existence of the client while mitigating factors serve to offset and therefore lessen the impact of contrary information. Findings revealed a significant correlation between the going-concern opinion decisions of auditors in the face of bankruptcy and the likelihood of bankruptcy as well as an audit-report lag variable. It was also revealed that the going-concern opinion is highly correlated with payment and covenant defaults but not with cured default. The opinion was also correlated with a bankruptcy lag variable and very negative news reports before the audit-report date. Lastly, corporate size was also found to affect auditors' opinions.