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Are auditor’s going concern opinions affected by debt-related events?
chapterposted on 06.12.2017, 00:00 by Lee Yao
This paper examines the issue of audit failure and attempts to answer the question why some bankrupt firms receive unmodified opinions while others do not. Specifically, we examine the impact of debt-related events on auditors’ decisions to issue going-concern opinions. We find that, in general, the occurrence of debt-related events does not prompt the issuance of going-concern opinions. The results suggest that audit failures may be attributed to the auditors’ downplay or negligence of the importance of debt-related events. The findings also suggest that managers who try to bring the company out of financial distress should avoid taking debt financing activities that prompt auditors to make going-concern qualifications.