A recent study by researchers at the University of Kansas and Colorado State University found that audit partners who issued adverse opinions were more likely to be removed from continuing engagements, which can result in unfavorable changes to their client portfolios, lower fees, and less prestigious assignments.
To determine this, the researchers examined the auditor’s attestation of management’s internal control over financial reporting (ICFR) under Section 404(b) of the Sarbanes-Oxley Act of 2002. Section 404(b) requires that external auditors issue an adverse opinion when there is a material weakness in the client’s ICFR.
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