Rules Rather than Discretion in Audit Standards: Going-Concern Opinions in Belgium

Accounting Review, Vol. 84, September 2009

45 Pages Posted: 6 May 2009

See all articles by Joseph V. Carcello

Joseph V. Carcello

University of Tennessee

Ann Vanstraelen

Maastricht Accounting and Auditing Research and Education Center (MARC); Maastricht University

Michael Willenborg

University of Connecticut - Department of Accounting

Abstract

We study going-concern (GC) reporting in Belgium to examine the effects associated with a shift toward rules-based audit standards. Beginning in 2000, a major revision in Belgian GC audit standards took effect. Among its changes, auditors must ascertain whether their clients are in compliance with two “financial-juridical criteria” for board of directors’ GC disclosures. In a study of a sample of private Belgian companies, we report two major findings. First, there is a decrease in auditor Type II errors, particularly by non-Big 6/5 auditors for their clients that fail both criteria. Second, there is an increase in Type I errors, again particularly for companies that fail both criteria. We also conduct an ex post analysis of the decrease in Type II errors and the increase in Type I errors. Our findings suggest the standard engenders both favorable and unfavorable effects, the net of which depends on the priorities assigned to the affected parties (creditors, auditors, companies and employees).

Suggested Citation

Carcello, Joseph V. and Vanstraelen, Ann and Willenborg, Michael, Rules Rather than Discretion in Audit Standards: Going-Concern Opinions in Belgium. Accounting Review, Vol. 84, September 2009. Available at SSRN: https://ssrn.com/abstract=1399983

Joseph V. Carcello

University of Tennessee ( email )

Department of Accounting & Information Management
629 Stokely Management Center
Knoxville, TN 37996-0560
United States
865-974-1757 (Phone)
865-974-4631 (Fax)

Ann Vanstraelen

Maastricht Accounting and Auditing Research and Education Center (MARC) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Michael Willenborg (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269
United States
860-486-3020 (Phone)
860-486-4838 (Fax)

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