An Investigation of Recent Changes in Going Concern Reporting Decisions Among Big N and Non-Big N Auditors

32 Pages Posted: 9 Jan 2008 Last revised: 2 Apr 2013

See all articles by Linda A. Myers

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Jaime J. Schmidt

University of Texas at Austin

Michael S. Wilkins

University of Kansas

Date Written: January 1, 2013

Abstract

Corporate accounting failures and regulatory proceedings that led to the enactment of the Sarbanes-Oxley Act of 2002 (SOX) increased the scrutiny of auditors. We investigate whether these events resulted in a change in auditor behavior with respect to going concern reporting. Generally speaking, we find that non-Big N auditors became more conservative while Big N auditors became more accurate. Specifically, non-Big N auditors issued more going concern opinions to both failing and non-failing clients post-2001, reducing their Type II misclassifications at the expense of increased Type I misclassifications. However, Big N auditors decreased their Type I misclassifications with no corresponding increase in Type II misclassifications. Thus, our findings suggest that increased auditor scrutiny resulted in performance improvements in the area of going concern reporting primarily for larger auditors. For smaller auditors, improved going concern accuracy for subsequently bankrupt clients came at the cost of more going concern opinions being issued to subsequently non-failing clients.

Keywords: going concern audit opinions, Type I and Type II misclassifications, auditor conservatism, auditor type, Big N auditors

JEL Classification: M49, G18, G33, G34, G38, M42, M48

Suggested Citation

Myers, Linda A. and Schmidt, Jaime J. and Wilkins, Michael S., An Investigation of Recent Changes in Going Concern Reporting Decisions Among Big N and Non-Big N Auditors (January 1, 2013). Review of Quantitative Finance and Accounting, 2013. Available at SSRN: https://ssrn.com/abstract=1411316 or http://dx.doi.org/10.2139/ssrn.1411316

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Jaime J. Schmidt

University of Texas at Austin ( email )

Austin, TX 78712
United States

Michael S. Wilkins

University of Kansas ( email )

Capitol Federal Hall
1654 Naismith Dr.
Lawrence, KS 66045
United States

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