The impact of political pressure on novice decision makers: are auditors qualified to make going concern judgements?

Arnold, Vicky; Collier, Philip A.; Leech, Stewart A.; Sutton, Steve G.

doi:10.1006/cpac.2000.0442

Cited by 27 publications

(22 citation statements)

References 14 publications

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“…Another explanation of high type II classification error rates is that auditors simply lack the expertise to accurately predict future bankruptcy outcomes. A field study by Arnold et al (2001) reveals that senior insolvency practitioners perceive that the decision strategies of auditors are very similar to those of junior (novice) insolvency practitioners and that the going-concern decision, as currently made, fails to include the specialized knowledge of expert decision makers.…”

Section: Changes Over Time In the Proportion Of Firms Entering Bankrumentioning

confidence: 99%

Audit Reporting for Going-Concern Uncertainty: A Research Synthesis

Carson

Fargher

Geiger

et al. 2012

AUDITING: A Journal of Practice &Amp; Theory

286

227

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In this synthesis we review research on going-concern modified audit opinions (GCOs) and develop a framework to categorize this research. We identify three major areas of research: (1) determinants of GCOs that include client factors, auditor factors, auditor-client relationships, and other environmental factors; (2) accuracy of GCOs; and (3) consequences arising from GCOs. We identify method-related considerations for researchers working in the area and identify future research opportunities.

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Section: Changes Over Time In the Proportion Of Firms Entering Bankrumentioning

confidence: 99%

Audit Reporting for Going-Concern Uncertainty: A Research Synthesis

Carson

Fargher

Geiger

et al. 2012

AUDITING: A Journal of Practice &Amp; Theory

286

227

View full text Add to dashboard Cite

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“…Other factors, such as the company's plans or ability to obtain future financing, affect the auditor's going-concern assessment. Arnold et al (2001) presents a theoretical framework of the audit decision process that consists of four broad-based components within the overall audit environment: (a) the auditor, (b) evidence gathering and analysis, (c) auditor/auditee contracting, and (d) social contracting. In addition they have examined the socio-political pressures surrounding the auditors' decisions whether to issue an audit opinion that includes a going-concern exception.…”

Section: Audit Qualification Opinionmentioning

confidence: 99%

Audit Qualification, Firm Litigation, and Financial Information: an Empirical Analysis in Greece

Spathis¹

2003

Int J Auditing

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In this study, we test the extent to which combinations of financial and non-financial information can be used to enhance the ability to discriminate between the choices of a qualified or unqualified (clean) audit report. Several models have been developed to explain qualifications in audit reports. The general consensus of these models has been that financial and non-financial factors dominate the audit opinion decision. In the USA, the Statement of Auditing Standards (SAS) No. 59 provides guidance for auditors to provide more critical evaluations to identify the possibility of qualifications problems. It identifies the conditions that an auditor should consider in evaluating going-concern status. These conditions include financial problems and operating problems. The standards also provide guidance on two other types of information, negative trends (operating losses) and other indicators, including internal matters, e.g., losses, and external matters (legal proceedings). For the most part, prior studies have not used any other qualitative variable(s) as indicators when developing audit opinion models. These qualitative indicators of potential solvency problems indicate year's losses and bad news characteristics, as firm litigation. TheIn this study, we test the extent to which combinations of financial and non-financial information can be used to enhance the ability to discriminate between the choices of a qualified or unqualified (clean) audit report. We examined the financial statements, the opinions of the auditors, and the notes to financial statements for companies that received a qualified audit report and for those that received an unqualified audit report. The data are taken from a sample of 100 Greek companies. Logistic and OLS regression models were estimated to assess the effect of firm litigation and financial information on audit qualification opinion. The qualification decision is associated by financial information such as financial distress and by non-financial information such as firm litigation. The model developed is accurate in classifying the total sample correctly with rate 78%. This study has implications for internal and external auditors and company decision makers.importance of these other qualitative indicators (firm litigation) in the auditor's decision has not been tested.The objective of the study was to develop a model based on financial information and other indicators, such as firm litigation, to explain qualifications in audit reports of Greek companies. The model will provide information on the likelihood of a company's receiving a qualification given its financial data and firm litigation data. This kind of model can serve as a decision aid for auditors when predicting what opinion other auditors would issue in similar circumstances, when evaluating potential clients, in determining the scope of an audit for existing clients, in peer reviews, to control quality within firms, and as a defence in lawsuits.Univariate tests (t-tests and chi-squared tests) and logistic and OLS ...

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“…These were presented to simulate the presence of multiple sources of information that make the going concern assessment a complex task (Mutchler et al, 1997;Arnold et al, 2001). The respondents were requested to examine the information given in each profile and to assess each company's going concern status on a seven-point semantic deferential scale anchored between "going concern" and "failed company".…”

Section: Methodsmentioning

confidence: 99%

“…A number of plausible explanations exist for this continuation. They include the leeway provided for professional judgement by current auditing standards and the effects of human information processing limitations, which make the audit judgement a complex one (Shelton, 1999;Arnold et al, 2001;Geiger et al, 2005).…”

Section: Implications Of Going Concern Misclassificationmentioning

confidence: 99%

“…This suggests that there is no single definition of the term "substantial doubt", which may result in the lack of consensus in going concern judgments. The above issue is further compounded by the subjective manner in which auditors assess business continuity (Matsumura et al, 1997;Shelton, 1999;Arnold et al, 2001). As going concern assessments are mainly unstructured, with auditors' professional judgement having a large impact on the assessment of audit evidence, a variation in audit opinions can exist between different auditors assessing the same entity (Grant et al, 1998;Shelton, 1999;Arnold et al, 2001).…”

Section: Implications Of Going Concern Misclassificationmentioning

confidence: 99%

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Assessing going concern

Kuruppu

Laswad

Oyelere

2012

Pacific Accounting Review

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to ascertain the practical efficacy of statistical corporate failure models in improving auditors' going concern assessment. It also aims to examine auditors' perceptions of corporate failure models as an analytical procedure in this context. Design/methodology/approach -The paper utilises a survey questionnaire with a case study component to evaluate the practical value of corporate failure models for assessing going concern, and to examine auditors' perceptions of such models as an analytical procedure for assessing going concern. Findings -The results indicate that corporate failure models facilitate the formation of more appropriate going concern opinions and increase judgment consensus. Auditors perceive such models as useful in obtaining relevant evidential matter and in mitigating some of the subjectivity involved in assessing going concern. However, the results also indicate that corporate failure models are perceived to be more effective in the planning stages than at the final stages of the audit. Furthermore, auditors are seeking more explicit guidance in auditing standards on the use of corporate failure models for assessing going concern. Originality/value -The study extends previous research by examining the practical efficacy of corporate failure models for assisting auditors to assess going concern in light of human information processing limitations. Further, it examines auditors' perceptions of corporate failure models as an analytical procedure, and the guidance that auditors seek on the use of such models in auditing standards.

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The impact of political pressure on novice decision makers: are auditors qualified to make going concern judgements?

Cited by 27 publications

References 14 publications

Audit Reporting for Going-Concern Uncertainty: A Research Synthesis

Audit Reporting for Going-Concern Uncertainty: A Research Synthesis

Audit Qualification, Firm Litigation, and Financial Information: an Empirical Analysis in Greece

Assessing going concern

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