Opinion Shopping to Avoid a Going Concern Audit Opinion and Subsequent Audit Quality

Despite regulatory concerns over opinion shopping (OS) behavior, there exists little systematic evidence on the prevalence and consequences of OS to avoid a going concern opinion (GCO) in today's audit environment. Using 11,628 distressed sample firms over the period 2004–2012 and Lennox's (2000) framework to identify OS, we find that distressed firms successfully engage in OS to avoid a GCO. Moreover, clients engaging in OS exhibit a higher ex post Type II error rate in audit opinions than clients that do not, and the higher Type II error rate is salient for clients switching auditors for OS but not for clients retaining auditors for OS. We continue to find this asymmetric effect of the two types of OS on audit quality measured by restatements. These results indicate that auditor switching for OS not only results in a higher likelihood of audit reporting failures but also impairs other dimensions of audit quality, while auditor retaining for OS has little adverse effects on audit quality