The Sound of Silence: What Does a Standard Unqualified Audit Opinion Mean Under the New Going Concern Financial Accounting Standard?

48 Pages Posted: 7 May 2019 Last revised: 21 Apr 2020

See all articles by Joel Owens

Joel Owens

Portland State University

K. Kelli Saunders

University of Nebraska at Lincoln - School of Accountancy

Samantha Schachner

University of Nebraska at Lincoln - School of Accountancy

Todd A. Thornock

University of Nebraska at Lincoln - School of Accountancy

Date Written: April 17, 2019

Abstract

A recent FASB standard requires an entity’s management to assess the entity’s ability to continue as a going concern and disclose substantial doubt about such. In contextualized experiments wherein the entity’s auditor does not issue a going concern opinion and the entity subsequently fails, we examine the effects of this new standard on jurors’ judgments of auditor liability, operationalized as auditor blameworthiness for investor losses. We find: (1) when management has not disclosed going concern issues, blame ascribed to auditors for investor losses increases under the new standard; (2) auditor blame increases further when management has disclosed going concern issues; and (3) inclusion of a going concern-related critical audit matter (CAM) in the audit report mitigates these adverse effects of the new standard on auditor liability. These findings provide insights regarding unintended consequences to auditors of the new FASB standard and the efficacy of CAMs to mitigate those consequences.

Keywords: ASC 205-40/ASU 2014-15, going concern, CAMs, auditor liability

JEL Classification: M41, M42

Suggested Citation

Owens, Joel and Saunders, K. Kelli and Schachner, Samantha and Thornock, Todd A., The Sound of Silence: What Does a Standard Unqualified Audit Opinion Mean Under the New Going Concern Financial Accounting Standard? (April 17, 2019). Available at SSRN: https://ssrn.com/abstract=3374039 or http://dx.doi.org/10.2139/ssrn.3374039

Joel Owens

Portland State University ( email )

PO Box 751
Portland, OR 97207
United States

K. Kelli Saunders (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Samantha Schachner

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Todd A. Thornock

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

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