Financial Distress, Institutional Ownership, and Going-Concern Audit Opinion: The Moderating Role of Prior Opinion

Abstract

Research Aim: This study examines the effects of financial distress and institutional ownership on going-concern audit opinions, with prior opinion as a moderating variable, among consumer cyclical companies listed on the Indonesia Stock Exchange during 2022–2024.

Methodology: A quantitative approach was employed using logistic regression analysis on 168 firm-year observations from 56 companies selected through purposive sampling. The data were obtained from audited annual financial statements and independent auditor reports published by the Indonesia Stock Exchange.

Findings: The model demonstrates strong explanatory power, with a Nagelkerke R² of 82.3%. Financial distress and institutional ownership significantly influence the likelihood of receiving a going-concern audit opinion. However, prior opinion does not moderate the relationships between financial distress or institutional ownership and going-concern audit opinion. These findings indicate that auditors emphasize current financial conditions and critically evaluate management’s ability to address business risks rather than relying on previous audit opinions.

Theoretical Contribution: This study extends agency theory by providing evidence that auditors base going-concern judgments primarily on current financial conditions instead of prior audit outcomes. The findings also help explain inconsistent results in previous studies regarding the moderating role of prior opinion and reinforce auditors’ function as independent monitoring mechanisms that mitigate information asymmetry between management and shareholders.

Practical Implications: Companies should strengthen financial performance and improve transparency to reduce the likelihood of receiving a going-concern audit opinion.

Research Limitations: This study focuses on two explanatory variables within a single industry sector. Future research should examine additional determinants and broader industry coverage to enhance the generalizability of the findings.

Keywords : Going Concern Opinion, Financial Distress, Institutional Ownership, Prior Opinion.