Do Adverse Opinions on Internal Control over Financial Reporting Lead to Changes in Reporting Format?

SYNOPSIS: This study examines whether the format of audit reports on financial statements and internal control over financial reporting (ICFR) changes in response to the disclosure of one or more material weaknesses in ICFR. The results indicate that (1) reporting format changes are more likely when adverse opinions are issued on ICFR and (2) formats are more likely to change from a combined report to separate reports than vice versa. . Supplemental analysis reveals that format changes to separate reports do not result in more favorable market perceptions but do result in marginally lower levels of auditor dismissal/change. These findings indicate that auditors have incentives to acquiesce to client requests to change reporting formats, even though such changes do not result in more favorable market perceptions.