Article2001

Further Evidence on the Auditor's Going-Concern Report: The Influence of Management Plans

Bruce K. Behn · Steven E. Kaplan · Kip R. Krumwiede

139 citations0/0 files storedAuditing A Journal of Practice & Theory

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

Abstract

The purpose of this paper is to report the results of a study examining whether auditors' going-concern reports are associated with management plans as directed in SAS No. 59. Proxies for management plan information are taken from management's discussion and analysis (MD&A), the 10-K, or the annual report. The paper extends work by Mutchler (1985) and Chen and Church (1992) by modeling and testing the association between the auditors' going-concern report and three types of management plan disclosures. After controlling for financial condition, size, default status, and the propensity to voluntarily disclose information, the results of the study indicate that auditors' going-concern reporting decisions are strongly linked to publicly available mitigating information relating to certain management plans. In particular, plans to issue equity and to borrow additional funds exerted the strongest association with the issuance of an unqualified opinion.

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References

1981Auditor size and audit quality 1991Disclosure, Liquidity, and the Cost of Capital 1997Disclosure level and the cost of equity capital.1997An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud 1994Why Firms Voluntarily Disclose Bad News 1994Auditor Litigation and Modified Reporting on Bankrupt Clients 1985A Multivariate Analysis of the Auditor's Going-Concern Opinion Decision 1994A Reexamination of Auditor versus Model Accuracy within the Context of the Going‐Concern Opinion Decision*

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2002Evidence on auditor risk-management strategies before and after The Private Securities Litigation Reform Act of 1995 2008Predicting going concern opinion with data mining 2009Going-Concern Audit Opinions and the Provision of Nonaudit Services: Implications for Auditor Independence of Bankrupt Firms 2013Going-concern prediction using hybrid random forests and rough set approach 2013A meta‐analysis of the determinants of modified audit opinion decisions

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