Are Auditors' Going-Concern Evaluations More Useful after SOX?
Journal of Ethics and Public Policy, Vol. 13, No. 1, 2012
19 Pages Posted: 18 Mar 2012
Date Written: March 17, 2012
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.
Keywords: Sarbanes-Oxley Act, SOX, going concern modifications, bankruptcy, pre-SOX, post-SOX
JEL Classification: H5, M4
Suggested Citation: Suggested Citation