Determinants of Audit Report Modifications: Evidence from Tunisia

Abstract

Purpose: The purpose of this study is to identify the factors influencing audit opinion reports in an emerging market, specifically Tunisia.
Study design/methodology/approach: The relationship between the dependent variable—modified opinion—and independent variables—audit quality, leverage, liquidity, profitability, and firm size—is examined using panel logistic regression. Robustness tests are conducted using an alternative profitability measure, ROAA, and a probit regression.
Sample and data: Data is collected from publicly available audited annual reports, with a sample of 36 listed firms on the Tunisian stock exchange from 2015 to 2022, resulting in 288 firm-year observations.
Results: The findings indicate that audit quality (BIG 4 auditors) and liquidity reduce the likelihood of a modified audit report, while leverage increases this likelihood. In the context of Tunisia, audit opinions are not influenced by firm size or profitability. Additionally, the COVID-19 pandemic significantly increases the likelihood of a modified audit report.
Originality/value: This study contributes to the existing literature by providing evidence from an emerging market, particularly in an under-explored region of Africa like Tunisia. It offers valuable insights to management, auditors, and regulators regarding the key factors affecting audit report decisions.
Research limitations/implications: Only Tunisian listed companies are included due to data availability; factors such as auditor independence, tenure, and non-audit fees are excluded. Future research could examine how crises like COVID-19 impact financial reporting and audit quality in the long term or investigate other emerging markets.