Strategic Auditor Behavior and Going-Concern Decisions

July 1996

48 Pages Posted: 28 May 2002

See all articles by Ella Mae Matsumura

Ella Mae Matsumura

University of Wisconsin-Madison - Department of Accounting and Information Systems

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting

Robert R. Tucker

Fordham University - Accounting Area

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Abstract

This paper analyzes a game theoretic model in which a client can potentially avoid a going concern opinion and its self fulfilling prophecy by switching auditors. Incumbent auditors are less willing to express a going concern opinion the more credible the client's threat of dismissal and the stronger the self fulfilling prophecy effect. Similarly, the client is more willing to switch auditors the more likely it is that auditors' reporting judgments will differ and the stronger the self fulfilling prophecy effect. Further, with greater noise in the auditor's forecast of client viability, the auditor tends to express fewer going concern opinions.

Keywords: auditing, game theory, opinion shopping, going-concern

JEL Classification: M40, M49, C70

Suggested Citation

Matsumura, Ella Mae and Subramanyam, K.R. and Tucker, Robert R., Strategic Auditor Behavior and Going-Concern Decisions. July 1996. Available at SSRN: https://ssrn.com/abstract=304455 or http://dx.doi.org/10.2139/ssrn.304455

Ella Mae Matsumura

University of Wisconsin-Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-9731 (Phone)
608-265-6040 (Fax)

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5017 (Phone)
213-747-2815 (Fax)

Robert R. Tucker (Contact Author)

Fordham University - Accounting Area ( email )

Graduate School of Business
113 W. 60th Street
New York, NY 10023
United States
212-636-6121 (Phone)

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