Going Concern Opinions and Management's Forward Looking Disclosures: Evidence from the MD&A

48 Pages Posted: 23 Mar 2017 Last revised: 2 Jun 2018

See all articles by Maria Enev

Maria Enev

affiliation not provided to SSRN

Date Written: May 27, 2018

Abstract

In this study I examine the relationship between the auditor’s going concern opinion and management’s forward-looking disclosures in the Management’s Discussion and Analysis (MD&A) section of 10-K filings. The analysis is two-fold and addresses whether the presence of a going concern opinion is associated with (1) the quantity of forward-looking disclosures and (2) the level of equivocation or lack of clarity of forward-looking disclosures. I examine MD&A disclosures from a sample of 2,365 financially distressed companies over the fiscal years 2010-2014 and find that while the absolute number of forward-looking disclosures is lower for companies receiving a going concern opinion, the proportion of forward-looking disclosures in the MD&A is greater in the presence of a going concern opinion. I also find that the forward-looking disclosures use less equivocation, and hence are clearer about future prospects when the company receives a going concern opinion. In addition, I find that forward-looking disclosures are significantly different for first-time versus continuing going concern opinions. In sum, my results suggest generally improved forward-looking disclosures in MD&A when companies receive a going concern opinion from their auditor.

Keywords: MD&A forward-looking disclosures, going concern, audit opinion, equivocation

JEL Classification: M41, M42

Suggested Citation

Enev, Maria, Going Concern Opinions and Management's Forward Looking Disclosures: Evidence from the MD&A (May 27, 2018). Available at SSRN: https://ssrn.com/abstract=2938703 or http://dx.doi.org/10.2139/ssrn.2938703

Maria Enev (Contact Author)

affiliation not provided to SSRN

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