EFFECT OF AUDITOR’S JUDGMENT AND SPECIALIZATION ON THEIR DIFFERENTIAL OPINION BETWEEN SEMIANNUAL AND ANNUAL FINANCIAL REPORTS

This study examines the factors that lead to issuing negative opinions on semiannual reports while issuing positive opinions in annual reports from the perspective of auditor-client relationships in listed companies in Taiwan. The empirical results show that the importance of the client is significant positively related to differential opinions while auditor tenure and industry specialists are significant negatively related to differential opinions. The results suggest that auditors have become more conservative and pay more attention to protecting their reputations post-Enron. The conclusion indicates that enhancing auditors’ specialization and independence reduces the opportunity to issue differential opinions in order to evade legal responsibility.