Economic Consequences of Going Concern Audit Opinions in Nonprofit Charitable Organizations

Abstract

This study examines the economic consequences of going concern audit reports (GCARs) in nonprofit charitable organizations (NPOs) using a sample of public charities that received initial GCARs between 1998 and 2003. I find that GCARs are negatively correlated with subsequent government grants. This evidence suggests either that the government utilizes GCARs as a screening criterion in its funding decisions or that affected NPOs voluntarily withdraw their grant applications. GCARs and subsequent contributions are also negatively correlated. There is no evidence of a significant correlation between a GCAR and the NPO’s subsequent public support. The findings indicate detectable adverse economic consequences of GCARs in the nonprofit sector.

Keywords: Going concern audit report, nonprofit audit, financial distress, economic consequences of going concern audit opinions

JEL Classification: G14, L31, M41, M42