Abstract

http://ssrn.com/abstract=2025280
 


 



Are Auditors' Going-Concern Evaluations More Useful after SOX?


Benjamin P. Foster


University of Louisville - College of Business and Public Administration

Terry J. Ward


Middle Tennessee State University

March 17, 2012

Journal of Ethics and Public Policy, Vol. 13, No. 1, 2012

Abstract:     
Bankruptcy risk is a crucial factor in auditors’ decisions whether or not to modify their audit opinion based on the going-concern assumption. SOX required more extensive audit procedures than those required before its passage. More extensive audit procedures should result in more meaningful audit reports. This study examines whether the auditors’ going-concern opinion provides more useful incremental information after SOX than before SOX in distinguishing between distressed companies that become bankrupt in the next year and those that do not. We find that an audit opinion variable adds more useful information to bankruptcy prediction models after SOX than before SOX. Our findings provide evidence that financial statement users have derived benefits from the costly procedures required under SOX.

Number of Pages in PDF File: 19

Keywords: Sarbanes-Oxley Act, SOX, going concern modifications, bankruptcy, pre-SOX, post-SOX

JEL Classification: H5, M4

Accepted Paper Series





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Date posted: March 18, 2012  

Suggested Citation

Foster, Benjamin P. and Ward, Terry J., Are Auditors' Going-Concern Evaluations More Useful after SOX? (March 17, 2012). Journal of Ethics and Public Policy, Vol. 13, No. 1, 2012. Available at SSRN: http://ssrn.com/abstract=2025280

Contact Information

Benjamin P. Foster (Contact Author)
University of Louisville - College of Business and Public Administration ( email )
School of Accountancy
Louisville, KY 40292
United States
502-852-4826 (Phone)
502-852-6070 (Fax)
Terry J. Ward
Middle Tennessee State University ( email )
P.O. Box 50
Murfreesboro, TN 37132
United States
615-898-2341 (Phone)
615-898-5045 (Fax)
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