An Appraisal of the Impact of Audit Qualifications on Firms’ Stock Exchange Price Fluctuations

Abstract

Audit reports constitute the basic mean of communication between the auditor and the users of financial statements. Consequently, statements have to be comprehensible and inclusive, in order to be rightly appreciated and used by investors in their decision-making process. Nevertheless, the importance that the investors attribute to reports and their contents is questionable and needs to be further investigated. The results of an abundance of published on the matter lead to controversial conclusions. This aim of this paper is to examine audit reports that have been issued and published for companies with shares on the Athens Stock Exchange (ASE) during the 2005-2007 periods. By using the market model and calculating bonuses, the impact of the auditing report on a company’s stock price is examined. Research results indicate that audit reports have limited informational content for investors and do not form part of their decision making process. This may be due to the lack of understanding for the contents, importance and value of such reports.

Keywords: Audit Reports, Auditing Standards, Financial Statements, Stock Price Fluctuations

JEL Classifications: M42, M41