Affect Audit Opinion on Share Price

4902 Words20 Pages

Mehdi Moradi Mahdi Salehi

The Effect of Qualified Audit Report on Share Prices and Returns: Evidence of Iran

Assistant Professor of Accounting Department, Ferdowsi University of Mashhad, Iran Assistant Professor of Accounting Department, Guilan University, Iran

Mehrollah Rigi & Mohsen Moeinizade
M.A Student in Accountancy, Ferdowsi University of Mashhad

Audit report is the consequence of auditing process and it is a major instrument of communication between auditor and financial statements ' user. This study attempts to examine the correlation between qualified audit report and share prices and returns in order to test information content of qualified audit report. A market-based study conducted on the
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Baskin (1972) used the market model to investigate the information content of "consistency exception" type of qualifications and to discover whether the nature of the "exception" affected investors ' decisions. He indicated that there was little effect, and that the consistency exception type audit report possessed no information content. Firth (1978) in order to evaluate the impact of releasing qualified audit reports on share prices on the date of the release of the report and their impact on investment decisions and concluded that share prices responded to certain types of qualifications and therefore the type of qualification influences investors ' decisions. He also added that investors react differently to various types of audit qualifications. In another survey, Firth (1980) used questionnaires, so that he could find out whether qualified and unqualified audit reports have information content to discover whether bank lending decisions and credit analysts ' reactions were affected by qualifications and the type of qualification. He also implied that these results indicate the audit report should contain more detail in this situation so as to help readers of the report to appraise the importance of the qualification for their decision making. Houghton (1983) in an experimental study, investigate the impact of the audit opinion on the

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