The effect of financial crisis on auditor conservatism: US evidence

Abstract

Purpose – This paper aims to examine the effect that the recent financial crisis had on auditor conservatism in the form of increased going-concern opinions. Design/methodology/approach – This study uses a sample of US’ distressed firms from 2005 to 2011 to test the change in going-concern opinions issued. This paper uses a logistic regression model to control for other predictors of going-concern opinions to determine when the financial crisis led to an increase in auditor conservatism. Findings – The authors find that auditors became more conservative in the form of issuing higher levels of going-concern opinions even after controlling for other predictors of going-concern opinions. This increased conservatism was present in both Big 4 and non-Big 4 accounting firms. The increased conservatism quickly returned to normal levels when the financial crisis eased. Originality/value – These findings add to the literature on the effects of environmental changes on audit opinions. Additionally, this study finds a difference in the timing of the reaction by large and small accounting firms, but, overall, it finds consistency in that both increased conservatism during the crisis and quickly returned to normal afterward.

Timely loss recognition in Brazilian firms under corruption investigation

“…This expectation is supported by the results of Beams and Yan (2015), who found that, due to the financial crisis of 2008, there was an increase in the conservatism of independent auditors through the issuance of audit reports warning about the going concern, especially for the group of firms with financial difficulties.…”

“…From another perspective, the economic environment is considered important to control the level of conservatism decision, as can be seen in the work developed by Beams and Yan (2015) who concluded that, due to the 2008 financial crisis, there was an increase in the conservatism of the independent auditors, through the issuance of audit reports warning about the going concern, mainly, for that group of firms with financial difficulties. Kaufmann (2015) argues that corruption involves a network of politicians, organizations, firms, and private individuals who conspire to benefit from access to power, public resources, and politics to the detriment of the public good.…”

Finansal Krizin Denetçi İhtiyatlılığı Üzerine Etkisi: Türkiye Örneği

“…Buna göre 0 değeri süreklilik varsayımının geçerli olduğu gözlemleri, 1 değeri ise sürekliliğinin zedelendiği gözlemleri temsil etmektedir. Çalışmada kullanılan gözlemlerin sınıflandırmasında aşağıdaki kriterler (Martens, Bruynseels, Baesens, Willekens ve Vanthienen, 2008;Chen ve Church, 1992;DeFond., Hun ve Subramanyam, 2002;Beams ve Yan, 2015) kullanılmış olup, bu kriterlerin en az ikisini karşılayan gözlemlerde süreklilik varsayımının zedelendiği kabul edilmiştir.…”

Accounting conservatism and money laundering risk

“…Accounting conservatism is one of the most interesting areas of accounting research. Some of the recent publications in this area include Grambovas et al (2006), Artiach and Clarkson (2014), Salama and Putnam (2015), Beams and Yan (2015) and Marzuki et al (2016). Accounting conservatism can be defined as accounting policies or tendencies that contribute to a downward bias in accounting net asset value relative to economic net asset value Ruch and Taylor (2015).…”