Article2011

Auditors’ going‐concern‐modified opinions after 2001: measuring reporting accuracy

Peter John Carey · Stuart Kortum · Robyn A. Moroney

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Auditing, Earnings Management, Governance Financial Distress and Bankruptcy Prediction Corporate Governance and Financial Management

Abstract

Abstract An important change in auditors’ reporting behaviour in the period after the high‐profile corporate collapses in 2001 is that auditors were more likely to issue going‐concern (GC)‐modified audit opinions. Comparing company failure rates subsequent to receiving a first‐time going‐concern (FTGC)‐modified audit opinion in the pre‐ and post‐2001 periods, we find a consistent type 1 error (misclassification) rate (the rate of survival among companies issued an FTGC opinion). Results are indicative of auditors maintaining GC reporting accuracy when comparing the 1995–1996 and 2004–2005 periods. This conclusion is supported after considering the impact of mitigating circumstances surrounding companies that received an FTGC‐modified audit report and survived.

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References

1984Methodological Issues Related to the Estimation of Financial Distress Prediction Models 2002Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions 2004What do we know about audit quality?2003Audit Committee Characteristics and Auditor Dismissals following “New” Going-Concern Reports 2002Shredded Reputation: The Cost of Audit Failure 1994Auditor Litigation and Modified Reporting on Bankrupt Clients 1997The Influence of Contrary Information and Mitigating Factors on Audit Opinion Decisions on Bankrupt Companies 2006Audit Firm Size and Going-Concern Reporting Accuracy

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2015Managerial Overconfidence And Going-Concern Modified Audit Opinion Decisions 2016Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research 2017Explaining auditors’ propensity to issue going‐concern opinions in Australia after the global financial crisis 2018Auditors’ going concern reporting accuracy during and after the global financial crisis 2021Do going concern disclosures in the management report and audit report signal bankruptcy risk? Evidence from privately held firms

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