Economic Consequences of Going Concern Audit Opinions in Nonprofit Organizations
Nancy Chun Feng
December 20, 2011
This study examines economic consequences of going concern audit reports (GCARs) in nonprofit organizations (NPOs) using a sample of public charities that received initial GCARs between 1998 and 2003. I find that total contributions decrease after an NPO receives a GCAR, indicating that GCARs lead to adverse economic effects. Further, I find that GCARs are negatively correlated with subsequent government grants, suggesting that the government utilizes a GCAR as a screening criterion in its funding decisions. However, there is no significant correlation between GCARs and subsequent public support. In addition, I find that a GCAR reduces an NPO’s debt level in the year after the NPO receives a GCAR, suggesting that creditors react negatively to a GCAR. The findings provide evidence of the information content of GCARs in the nonprofit sector.
Number of Pages in PDF File: 36
Keywords: Going concern audit report, nonprofit audit, financial distress, economic consequences of going concern audit opinions
JEL Classification: G14, L31, M41, M42working papers series
Date posted: March 4, 2012 ; Last revised: April 25, 2012
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