Routledge Companion to Auditing. Edited by David Hay, W. Robert Knechel and Marleen Willikens, 2014
Posted: 17 Apr 2014
Date Written: April 15, 2014
Accurately assessing the ability of a financially distressed company to stay in business through the next year is a difficult task at best. Notwithstanding this difficulty, auditors have seemingly been saddled with a large portion of this responsibility for the companies that they audit. Current auditing standards in most countries do not intend for auditors to be predictors of future viability; nevertheless, the standards require auditors to modify their normal reports to highlight the fact that, in the auditor’s professional judgment, they have serious doubts about whether their client will be able to continue in business through the next fiscal year. The judgments involved in this assessment are complex and the auditor-client dynamics leading to a going concern modified opinion are not fully understood. This chapter presents a high level overview of the existing research attempting to shed light on this context-rich reporting obligation of the auditor, as well as the effect of these types of opinions on companies, auditors and the markets.
Keywords: Audit Reporting, Going Concern, Bankruptcy, Financial Distress
JEL Classification: M10, M40
Suggested Citation: Suggested Citation