Auditor behavior and the institutional environment: the (new) role of an "emphasis of a matter" paragraph

his paper investigates the existence of unqualified opinions with an emphasis of a matter paragraph disclosing uncertainties. We show that depending on institutional characteristics, auditors may be either conservative or aggressive, but there are economies where auditors become moderate. We define a moderate auditor as one that issues an emphasis of a matter paragraph instead of a qualified opinion when there is inconclusive evidence on the client?s condition or even to disguise conclusive evidence about a bad financial condition. We theoretically explain when the type of behavior ? conservative, aggressive or moderate ? will take place. In addition, we show that greater client pressure on auditors increases audit quality. Finally, the existence of an emphasis of a matter paragraph always induces investment in the economy, despite being suboptimal. This paper contributes to the existing literature by demonstrating the determinants and consequences of this new type of attestation.