An Analysis of Auditors' Going-Concern Reporting Accuracy in Private Firms

44 Pages Posted: 7 Jul 2018

See all articles by Kris Hardies

Kris Hardies

University of Antwerp

Marie-Laure Vandenhaute

Vrije Universiteit Brussel

Diane Breesch

Vrije Universiteit Brussel

Date Written: December 21, 2018

Abstract

The accuracy of audit reports is often viewed as a signal for audit quality. Prior research shows that in the context of going-concern reporting in audit markets dominated by public firms, some auditors are more accurate than others (e.g., Big N firms). This study is the first large-scale study that investigates going-concern reporting accuracy in an audit market dominated by private firms. The threat of reputation and litigation costs incentivizes auditors to report accurately in markets dominated by public firms, but such incentives are largely absent in markets dominated by private firms. Hence, reporting accuracy in such markets might not vary across auditors. Our main analysis is based on a sample of 1,375 Belgian firms that ceased to exist within one year from the financial statement date. Our results show that the frequency of Type II misclassifications does not vary across auditor types (Big 4 vs. non-Big 4, audit firm and partner industry specialists vs. non-specialists, more experienced vs. less experienced, and female vs. male auditors). Overall, these results cast doubt on the existence of quality differences among auditors in audit markets dominated by private firms.

Keywords: audit quality, audit reporting, going-concern, private firms

JEL Classification: M42

Suggested Citation

Hardies, Kris and Vandenhaute, Marie-Laure and Breesch, Diane, An Analysis of Auditors' Going-Concern Reporting Accuracy in Private Firms (December 21, 2018). Accounting Horizons, 2018, Available at SSRN: https://ssrn.com/abstract=2370842 or http://dx.doi.org/10.2139/ssrn.2370842

Kris Hardies

University of Antwerp ( email )

Department of Accounting and Finance
Pleinlaan 13
Antwerp, 2000
Belgium

Marie-Laure Vandenhaute

Vrije Universiteit Brussel ( email )

Pleinlaan 2
Brussel, 1050
Belgium

Diane Breesch (Contact Author)

Vrije Universiteit Brussel ( email )

Pleinlaan 2
Brussels, Brussels 1050
Belgium

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