Audit Partner Trait Skepticism and Going-Concern Reporting Decisions

Abstract

We investigate the relationship between audit partners’ professional skepticism and their going-concern reporting decisions. We link publicly-available archival data on audit opinions and companies’ financial characteristics with privately-collected audit partner data on professional skepticism (measured with the Hurtt Professional Skepticism Scale). We find a positive association between partners’ trait skepticism and the likelihood that a partner issues a going-concern opinion to a financially distressed company. In supplemental analyses, we investigate underlying nuances
relating to this association in terms of partner workload, Big 4 affiliation, and alternative measures of trait skepticism. We find that workload is negatively associated with the likelihood of issuing a going-concern opinion, but only when trait skepticism is relatively low; as trait skepticism increases, the probability of receiving a going-concern opinion increases with partner workload. Further, trait skepticism has a larger effect on going-concern reporting for Big 4 partners than for non-Big 4 partners. Alternative measures of trait skepticism prove to be less reliable predictors of partners’ going-concern reporting decisions.

Keywords: professional skepticism, trait skepticism, going-concern, Hurtt scale, workload

JEL Classification: M42, J24