The External Auditor’s Opinions and The Stakeholders’ Purposes: An Empirical Analysis in Sri Lanka

This paper specially investigate the Sri Lankan audit opinions and its’ effect to the investors’ decision making. It has been conducted the market-based model with a sample of thirty one (31) listed manufacturing companies on the Colombo Stock Exchange; the dependent variable “Stock Return” serve as proxy for Investors’ Decisions and independent variables are “Audit Opinions” published in Sri Lanka. The study use Anova test for the study. This research study’s final consequence is robust the notion of the audit opinions are not informative value to the investors’ decisions.


Introduction
According to the archival studies the main role of the financial statement auditing is promulgation the appropriate audit opinion. Financial statement auditing is identified as a good research area by the scholars, since it has unconvincing and denial in literatures in accordance with prior literature exposures; For instance, to the best of prior scholars' investigations report different conclusions as different country wise as well as different regimes. As an example, in the United Kingdom (UK) position audit may help for the stakeholders make better decisions (Power, 1994). The UK has a broader view about the auditing, because they usually audit the financial statement's reliability as well as concerning the economic efficiency (Palepu, 2008). According to the Palepu & Healy (2008) in the United States (US) situation has been expressed steadily progression the worth of the audits to the investors. Additionally, in USA different audit opinions presents different market reactions to the audit opinions (Dopuch et al, 1987). In China, the results were presented by Chen et al (2000) that the audit opinions have information content for the investors' decisions. When Spanish market was investigated by Martínez † et al (2004) found the modified audit opinions has not any information content to the investors.
As the results of the above literatures have divulged the various countries have different conclusions as well as the literatures have been declared the various result regarding same country investigations also; For example, the US literatures said that the results of the relationship between audit opinions and the investors or stock markets are minor or inconclusive (Mutchler, 1985: Dodd et al., 1984: Elliott, 1982. Otherwise the audit opinions have information value (Chen & Church, 1996: Jones, 1996. Different audit options have different reactions with financial and market variables (Dopuch, 1987). And also same audit opinion has a different investigation results, for instance; when consider about going concern audit opinion (GCAO), it has disparate investigations' result as reviewing; such Mutchler (1985) said that the investigation provides little evidence for the GCAOs about information content and same as Dodd et al. (1984) was presented the result.
The information content of "Subject to" audit opinions including going concern audit opinions that disclosed the going concern circumstances in the firm is inconclusive (Elliott, 1982). The GCAO has information value (Chen & Church, 1996: Jones, 1996.Finally concerned the all literatures' finalized outcome here concludes the results are inconclusive and have the contradiction in literatures, therefore it guides and promote to further investigation. According to the above descriptions it is proven the importance of this study and this investigation provides new knowledge to the existing body of knowledge such evidence regarding investors' decisions on all audit opinions in Sri Lanka. In this investigation researchers have found out the effect of the each audit opinion to the investors' decisions (CGY) in Sri Lankan context. There are mainly three audit opinions as Unmodified Audit Opinion (UMAO), Modified Audit Opinion (MAO) and Unmodified Audit Opinion with Emphasis of Matter Paragraph (U-EMP). According to Sri Lanka Accounting and Auditing Standards act and the Auditing Standards, the responsibility of the auditor is to express an opinion on the preparation and presentation of the financial statements. The main purpose of this is to satisfy the referees of the financial statements about the true and fairness of them through an opinion from an independent party. However, the issue here is how far the users of the financial statements are considering the auditor's opinion in their decision making process. Hence, we thought to investigate this problem through this research study and we concentrate on the issue considering only the investors decision making. Therefore, the objective of this study is to determine the significance of external auditors' opinions on the firm Stakeholders' Purposes (Investors' Decisions).
In order to solve the problem highlighted, researchers applied the market based model (Craswell, 1985) with investigating all audit opinions publicizing widely in Sri Lanka and capital gain yield used as the dimension of the investors' decision making. Selected thirty one (31) manufacturing companies listed on Colombo stock exchange (CSE) as the real sample and this study based on secondary data.
One way-Analysis of Variance (ANOVA) is used as the analysis method. This research study's final consequence is robust the notion of the audit opinions are not informative value to the investors' decisions.
The research study demonstrates as following sequences. The next section deals with the review of past studies in relating to external audit opinion and stakeholders decision making. The third part, methodology section, discusses the selected variables, data set, method and methodology. The fourth section presents the data analysis and finally the conclusion of the study is presented.

Literature Review
When carefully behold the earlier literatures, it reveals a controversial research gap in relation to UMAOs or Clean Audit Opinions (CAOs). Even though the past studies not directly investigate the problem with the CAOs they provide results that the CAOs are responding differently in contrast with the other audit opinions (Dopuch et al, 1987: Whittred, 1980: Carlson et al, 1998. In addition to that the responses are not found imposingly between the CAOs and the other audit opinions (Lin et al, 2003). As a whole, the CAOs have not information content or any market responses (Mutchler, 1985: Frost, 1991. However, according to Whittred, (1980): Firth, (1978 and Chen et al, (2000) CAOs have an informative value. CAOs are the positive sense indicators for the financial statement users (Chen& Church, 1996: Carlson et al, 1998: Jones, 1996: Chen et al, 2000. In addition to that, researchers like Lin et al, (2003) and Martínez † et al, (2004) (Dopuch N et al, 1987, Whittred, 1980, Firth, 1978 A note on the impact of audit qualifications on lending and credit decisions, 1980, (Gul, 1990 andLopez et al, 2009). Besides that the MAOs has expressed the Slight stock price responses or the little informative value (Dodd et al, 1984, Lin et al, 2003and Craswell, 1985.

Thenceforth reveal such, stock price responses have a negative relationship on
MAOs (Dodd et al, 1984, Chen C. J et al, 2000, Frost, 1991and Gul, 1990. There are studies that provide evidence of MAOs have informative values (Whittred, 1980, Choi & Jeter, 1992, Chen et al, 2000, Menon & Schwartz, 1987, Banks & Kinney, 1982, Gul, 1990, Lopez et al, 2009and Shelton & Whittington, 2008. However, some investigations revealed that the MAOs are not information content or the informative value is unconvincing (Elliott, 1982, Martínez † et al, 2004, Frost, 1991, Dopuch N et al, 1986, Al-Thuneibat et al, 2008, Czernkowski et al, 2010, and Moradi et al, 2011. The research has provided lack of evidence about the information content or not much more important for the decision making (Craswell, 1985). Above research studies are contradicted and inconclusive; therefore the research gap has been displayed by the prior results of the studies besides it is emerging a research problem that how the MAOs are affecting on the decisions of the users of the financial statements.
At the very beginning looked up the archival data obviously assist to realize the certain research gap should be the most complete on the U-EMP, In accordance with the interpreted results have expose to view that the audit opinions discussed undergoing concern circumstances as well as special matter relating to the company are information content (Chen & Church, 1996: Carlson et al, 1998:Jones, 1996: Chen et al, 2000, Taffler et al, 2004: Joe, 2003: Blay & Geiger, 2001,Menon & Williams, 2010, Kausar et al, 2009: O'Reilly, 2009: Schaub, 2006: Feldmann & Read, 2013.The little evidences are presented by the investigations regarding the information content of the opinions relating to going concern (Dopuch et al, 1987: Mutchler, 1985: Joe, 2003: Ogneva & Subramanyam, 2007: Herbohn et al, 2007. GCAOs' informative value is not appearing or inconclusive (Elliott, 1982). Long-run has the stock market responses towards GCAOs (Herbohn et al, 2007). The GCAOs are presented the manifest negative sense (Chen & Church, 1996: Jones, 1996. Market variables react negatively on the going concern related audit opinions in short-run (Carlson et al, 1998). The responses are negative in long-run of the stock price return on audit opinions relating to the going concern (Taffler et al, 2004). Stock market variable is reacting negatively with the audit opinions are publicized by the auditors regarding going concern or materialized matter (Chen et al, 2000: Blay & Geiger, 2001: Menon & Williams, 2010. Especially interpret the evidence has not found any negative stock price responses on GCAOs (Ogneva & Subramanyam, 2007). The results are interpreted as stock market underreacts to the GCAOs (Kausar et al, 2009). The additional proof is not derived from the investigation for the stock market underreacts to the GCAOs (Ogneva & Subramanyam, 2007).
The study provides evidence that the stock market overreact on GCAOs (Schaub, 2006). The responses are varied on the GCAOs as the audit opinions' context (Menon & Williams, 2010). Finally, the main conclusion has emerged from the most from previously mentioned archival studies the U-EMP such relating to GCAOs have informative value rather than the other types of audit opinions.
Anyway, few in number of evidence promulgate the conflicting results. The curiosity be revealed on the above literatures that interpreted result will be same and robust the plentiful notion for the further investigation.
In accordance with all audit opinions and auditing, the distinctive interpretations are proven by the research's results and specialist guidance which different kinds of conclusions. It should be appeared the strong consequence which the auditing is valuable (Palepu & Healy, 2008: Power, 1994, (İrem & Deniz, 2012, Kelly & Mohrweis, 1989, Gomez-Guillamon, 2003: Salehi & Bizan, 2010.
However, the somewhat studies expose, the research results provide little or lack of evidence about the audit opinions' information content (Craswell, 1985). And also dissimilar audit opinions are presenting different responses towards the decision making (Dopuch et al, 1987: Whittred, 1980. Additionally, the information content of audit opinions are not or inconclusive (Czernkowski et al, 2010: Roden & Meador, 1980. In all appearance has been extract from the preceding literatures that the space between research results.

Methodology
This investigation is using the market-based research model; the main variables are conducted by the research which the stock price returns and the audit opinions respectively dependent variable and the independent variable. Data collected from secondary sources by using a selected sample during the time period of 2008-2013 and therein annual reports websites etc. Behalf of the stock price return this investigation use the CGY 1 .

Conceptual Framework of the Study
In order to answer the main research problem of the study, we have conceptualized the model as in Figure 01 below.  Table 01 depicts the way of sample selection and accordingly thirty one manufacturing companies listed in CSE has analyzed in our study.

Data analysis and Findings
This section discusses the data analysis under the statistics, test of assumptions, estimated results and the findings. Table 2 shows the one way ANOVA test results in order to get the overall idea about the data set. Moreover, the significant level (testing 0.05) and the P value present the comparable explanation for the finding. Here the first column displays a one category and the subsequent column expresses the other categories compared to the previous one. There are three audit opinions and the sub groups compared to them. However here directly pay attention to the significant value of the table in each category; it seems the all the calculated significant value are strongly higher than the tested significant level of 0.05. Therefore, the result can be derived as the each set of audit opinions are not significant with the other one.
It seems that there is no such relationship between any audit opinion, the UMAO has not significantly differ from the MAO as well as U-EMP because the theory test that the 95% confidence level and the differences between each other is not equal to zero (0) it means there is no any significant difference between tested items. And also the MAO is not significantly differ from the U-EMP. To all sense of this result, that there is no any significant difference between each audit opinion, but the prior literature supposed at least the U-EMP (concerning GC manner) also differ from other audit opinions. But it is not exhibit any strong differences on means of the each audit opinions. Therefore, it conceives the all audit opinions are same as their behavior and the CGY response similarly.
The all evidence proves that under the limitations of the study, that there is information content of all audit opinion is genuinely not displays; it is subjectively.
However, that can be come to inspection as the presented result that the all audit opinions have not information content. Prove the evidence as this discloses previous figures, the figure 02 and 03 below explains the condition of the result manifestly.   table depicts figures  and it expose result as well as the table of multiple comparisons' expressions the   null hypotheses should be accept but the meaning is oppose to the derived result, hence it emerge the Type II error on the hypothesis testing that need to reject null hypothesis but cannot do it. It should need to clear understanding that according to the theory that express such kind of situation the null hypothesis is not true however it's impossible to reject the null hypothesis.

Conclusion
The investigation of "The External Auditor's Opinions and the Stakeholders' Purposes; An Empirical Analysis in Sri Lanka" has been proceeded with using Sri  Mutchler, (1985) and also (Frost, 1991) that they expressed the idea with their final conclusion is the audit opinions has not any informative value having any inspection surround by the different audit opinions.
This research is forward the final result stood opposite with the limitations of the time, data collection limitations and the narrow scope selection for the investigation of the selected area, sample size is not great and especially methodology limitations. Therefore the above limitations has been interrupted the pure result. And so there are little brainchild for the further investigators, that they could be avoided this limitations as well as advance statistical testing can be used behalf of the fundamental and simple method.
This study supplements the new knowledge to the existing body of knowledge about the Sri Lankan situation regarding the auditing. Here discernible thing is that the investors' do not concern about the auditing. This all result finalized and show the conclusion that the Sri Lankan investors have less knowledge behind the auditing. The novel knowledge is the all audit opinions are promulgating in Sri Lanka is not influenced to the investors in Sri Lanka in order to make investment decisions. As a whole result of this study, comes into the negative perception of the audit opinions' informative value.