An auditor gives a going concern uncertainty opinion when the client company is at risk of failure or exhibits other signs of distress that threaten its ability to continue as a going concern. The decision to issue a going concern opinion is an unstructured task that requires the use of the auditor's judgment. In cases where judgment is required, the auditor may benefit from the use of statistical analysis or other forms of decision models to support the final decision. This study uses the generalized reduced gmhent (GRG2) optimizer for neural network learning, a backpropagation neural network, and a logit model to predict which firms would receive audit reports reflecting a going concern uncertainty modification. The GRG2 optimizer has previously been used as a more efficient optimizer for solving business problems. The neural network model formulated using GRG2 has the highest prediction accuracy of 95 percent. It performs best when tested with a small number of variables on a group of data sets, each containing 70 observations. While the logit procedure fails to converge when using our eight variable model, the GRG2 based neural network analysis provides consistent results using either eight or four variable models. The GRG2 based neural network is proposed as a robust alternative model for auditors to support their assessment of going concern uncertainty affecting the client company. Subject Areas: Auditing, Decision Processes, and Decision Support Systems.*The authors are thankful to Professor Ming Hung for his suggestions on the use of the GRG2 optimizer, and to the anonymous reviewers for their useful comments and suggestions.

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Prior literature argues that information technology (IT) capability, an organization's ability to effectively use IT-based resources in combination with other organizational resources, can create unique and sustainable competitive advantages and thus intangible assets for a company. However, current accounting rules do not allow the capitalization of IT-enabled intangible assets. We hypothesize that IT-enabled intangible assets are value-relevant and provide incremental explanatory power for firm valuation beyond traditional accounting information. IT capability is inherently risky as it is subject to implementation challenges, technological complexity, and innovative integration of IT investments with other organizational resources. Thus, we argue that IT capability is positively associated with future earnings uncertainty and decreased analyst forecast accuracy. Using InformationWeek 500 ranking index as a proxy for IT capability, we find evidence supporting these hypotheses. This study contributes to the growing literature on IT capability.

Purpose This study aims to examine the relationship between auditor tenure and conservatism for firms in Greece. Greece not only has a high incidence of earnings management but is also required under the new European Commission (EC) regulation to comply with mandatory auditor rotation. Therefore, Greece is an ideal setting in which to study the association between auditor tenure and accounting conservatism. Design/methodology/approach Similar to Jenkins and Velury (2008), this paper uses Basu’s (1997) asymmetrical timeliness of earnings as a measure of conservatism. Following Li (2010), the regression is re-estimated for subsamples based on client importance as measured by the ranking of client sales among all clients audited by the firm. Findings In contrast to Li (2010), the results of this study, which used a sample of firms in Greece, indicate that conservatism decreases as the auditor–client relationship lengthens. Client importance does not appear to affect the relationship between auditor tenure and conservatism, as measured by asymmetric timeliness of earnings. However, when using the accrual–cash flow measure of conservatism (Ball and Shivakumar, 2005), it is found that auditor tenure is positively (negatively) associated with conservatism for less (more) important clients. The results suggest that longer auditor tenure may have a negative impact on audit quality in certain countries where accounting quality has been found to be poor. Therefore, the new EC regulation requiring mandatory auditor rotation may in fact improve audit quality for firms in Greece. Research limitations/implications This study’s sample consists of firms on the Athens Stock Exchange for the period of 1998-2011. This sample was purposely selected because of the unique conditions of rampant earnings management and low incentive in Greece for the auditors to exert effort to detect such practices. Moreover, Greece is subject to the new EC regulations requiring mandatory auditor rotation beginning in 2014. Future studies could examine this issue in alternate settings and over different time periods. Also, other cross-sectional variations among firms which affect the association between auditor–client tenure and audit quality may exist. Practical implications The findings are important to regulators such as the EC and indicate that Greece may be an appropriate setting in which to require mandatory auditor rotation. These results are also useful to auditors who wish to improve the audit quality and the public’s perception of their work. Originality/value Auditor tenure has been the subject of considerable debate, and regulators contend that long auditor tenure reduces audit quality. There may be a valid argument in favor of mandatory auditor rotation in countries particularly susceptible to low accounting quality due to issues such as rampant earnings management. Greece appears to be one such example, and this study provides support in favor of that argument by demonstrating that longer auditor tenure may lead to lower accounting quality in terms of conservatism. Therefore, the recent EC regulation may result in improved audit quality for firms in Greece.