The Relationship Between Corruption and Modified Audit Opinion: Case of Albania-Banking System

Abstract

The study examines the relationship between corruption and modified audit opinions, based on the data of Corruption Perception Index (CPI) published by Transparency International and audited annual reports of banks operating in Albanian banking system in the period of 2009 to 2014. After conducting the Pearson Correlation Analysis, the results of the study indicate that there is a strong and positive relationship between CPI and modified audit opinions (MAOs). While, countries that have low score of CPI are more corrupted and countries with high score of CPI are less corrupted. Within this context, it can be concluded that high level of corruption is associated with decreasing number of MAOs. The study also provides a review of information on audits performed by auditors during the examination period of the study from 2009 to 2014. During these years, ninety-two percent of banks are audited by big four audit companies, while only eight percent of the banks are audited by non-big four audit companies. In the deep review on the reasons of the modified audit opinion, violation of international accounting standards on foreign exchange translations, below minimum required limit of capital adequacy ratios and violation of going concern principle were reported.