Economic Consequences of Going Concern Audit Opinions in Nonprofit Organizations

Abstract:     
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, M42

working papers series