SUMMARY: The high-profile collapses during the period 2000 to 2002 resulted in increased litigation against auditors, higher insurance costs, increased media scrutiny, and increased regulatory review of the auditing profession. Prior research suggests that auditors’ decisions were more conservative after this period. We compare auditors’ propensity to issue going-concern opinions before and after 2000–2002. Consistent with increased auditor conservatism, we find that auditors were more likely to issue going-concern opinions to financially stressed companies immediately after the crisis period. The increase in going-concern modifications issued resulted in a few less companies observed to fail without a going-concern modification, but only at the cost of more modifications issued to companies that did not fail. The results do not, however, support continued auditor conservatism beyond 2003.
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1 November 2008
Research Article|
November 01 2008
Changes in the Audit Environment and Auditors’ Propensity to Issue Going-Concern Opinions
Online ISSN: 1558-7991
Print ISSN: 0278-0380
American Accounting Association
2008
AUDITING: A Journal of Practice & Theory (2008) 27 (2): 55–77.
Citation
Neil L. Fargher, Liwei Jiang; Changes in the Audit Environment and Auditors’ Propensity to Issue Going-Concern Opinions. AUDITING: A Journal of Practice & Theory 1 November 2008; 27 (2): 55–77. https://doi.org/10.2308/aud.2008.27.2.55
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