2019 14th Iberian Conference on Information Systems and Technologies (CISTI) 19 – 22 June 2019, Coimbra, Portugal ISBN: 978-989-98434-9-3 Determinant factors of external audit opinion modification in Portuguese municipalities Isabel Maldonado GOVCOPP – Universidade de Aveiro REMIT – Universidade Portucalense Porto, Portugal ianm@uportu.pt Carlos Pinho GOVCOPP – Universidade de Aveiro Aveiro, Portugal cpinho@ua.pt Carla Azevedo Lobo REMITand IJP – Universidade Portucalense Porto, Portugal cadsa@uportu.pt Abstract — This paper aims to identify the determinant factors of external audit opinion modification in Portuguese municipalities that integrate the metropolitan areas of Porto and Lisbon, covering 65 municipalities. The defined time horizon was from 2013 to 2017. The analysis allows to identify six predominant factors related with: non-current assets, amortizations, investment subsidies, debts to receive, equity investments and provisions as reasons to modified opinions. The study also highlights the fact that approximately one-third of modified opinions are related to the identification, classification, measurement and assets registration. Keywords - auditing, municipalities, modified opinion. I. INTRODUCTION Being the purpose of an audit to enhance the degree of confidence of intended users in the financial statements, according to [1] “this is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. In the case of most general- purpose frameworks, that opinion is on whether the financial statements are presented fairly, in all material respects, or give a true and fair view in accordance with the framework.”. The auditor opinion can be classified as Unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework or as Modified opinion (an qualified opinion, an adverse opinion or a disclaimer of opinion on the financial statements) when the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement or the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement [1]. The Public sector auditing provides transparency, accountability and value for money and results in good governance [2]. In Local Government there are several areas that should be object of external audit due to the special interest of the recipients and users of the audit reports. Evaluating the efforts undertaken to obtain a more rigorous and transparent public management, several studies focus their attention on the practices of accountability, transparency and reliability of the information produced and disseminated by the municipalities. However, in Portugal, the external auditing of the local public sector is relatively recent and was only introduced in 2007 for some municipalities, and its scope was extended to all municipalities in 2013 with the new Financial Regime of Local Government and Intermunicipal Entities. Several studies have been carried out for the private sector, trying to identify the factors that determine modified opinions, however, as regards local entities, the theme is not so developed in Portugal due to the recent mandatory external audit. The objective of the paper is to identify the factors that determine auditors modified opinions in Portuguese local government entities. In addition to this introduction of the theme, this article presents in chapter 2 a brief literature review and in chapter 3 are presented the data and methodology. Chapter 4 summarizes the main results and chapter 5 concludes. II. LITERATURE REVIEW Having an independent auditor is one of the best ways of getting an objective and unbiased opinion on something [3]. According to [4], the role of the audit in government tends to follow changes in demands on the public sector which are determined by regulatory changes that allow the audit role adjusted to adapt to changes in public management. Thus, the public sector auditing provides transparency, accountability and value for money and results in good governance [2]. [5] state that “audit reports are a key element for auditors to promote accountability and clear criteria in the form of professional audit standards to assist in producing credible reports on government performance that provide focus, transparency, and predictability”. In Portugal, until 2007, local authorities auditing was carried out by the Court of Auditors, by the General inspection of finances and by the General inspection of the local administration. Within the objectives of the so-called new public