Changes in the audit environment and auditors' propensity to issue going-concern opinions

Abstract

The high-profile collapses during the period 2000 to 2002 resulted in increased litigation against auditors, higher insurance costs, increased media scrutiny, and increased regulatory review of the auditing profession. Prior research suggests that auditors' decisions were more conservative after this period. We compare auditors' propensity to issue going-concern opinions before and after 2000-2002. Consistent with increased auditor conservatism, we find that auditors were more likely to issue going-concern opinions to financially stressed companies immediately after the crisis period. The increase in going-concern modifications issued resulted in a few less companies observed to fail without a going-concern modification, but only at the cost of more modifications issued to companies that did not fail. The results do not, however, support continued auditor conservatism beyond 2003. Show more