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To be or not to be - Auditors' ability to signal going concern problems
Department of Management and Engineering, Linköping University, Linköping, Sweden .
Mid Sweden University, Faculty of Human Sciences, Department of Business, Economics and Law. (CRER)ORCID iD: 0000-0001-5731-0489
2015 (English)In: Journal of Accouting & Organizational Change, ISSN 1832-5912, E-ISSN 1839-5473, Vol. 11, no 2, p. 175-192Article in journal (Refereed) Published
Abstract [en]

Purpose - This paper aims to chart Swedish auditors' likelihood of issuing going concern warnings (GCWs), and to investigate the relationship between formal auditor competence, audit fees and audit firm, respectively, and the likelihood of issuing GCWs. Design/methodology/approach - The empirical data are based on annual reports and audit reports for 2,547 limited companies that went bankrupt in 2010 in the wake of the financial crisis and had filed a financial statement in the year before the bankruptcy. Findings - The findings indicate that Swedish auditors seldom issue GCWs. Moreover, there is a positive relationship between audit fee level and the likelihood of issuing GCWs, and Big 4 auditors being more likely to issue such warnings than other auditors. However, the analyses identify differences between audit firms (within the group of Big 4 firms and within the group of other audit firms) in terms of their predictions of client bankruptcies. This suggests a need for further investigation of firm-specific differences. Contrary to what was predicted, authorized auditors are not more likely to issue GCWs than approved auditors. Research limitations/implications - This paper did not investigate the impact of audit experience and tenure or the possibility that auditors may signal survival problems by resigning. Practical implications - Levying appropriate audit fees creates opportunities for thorough audits, but auditors' formal competence based on training and qualification is not a factor that enforces audit quality. Based on the findings, the authors also suggest some clarifications of existing standards to reduce ambiguity regarding the reporting of survival problems. Originality/value - The Swedish setting is a context in which most companies are small, creditor interest in accounting and auditing is strong and auditors must issue a modified audit opinion if half of the shareholders' equity is spent. This setting offers a unique research opportunity because the formal competence differs between Sweden's two categories of certified auditors, and it allows exploration beyond the dichotomy of Big 4 versus other audit firms. © Emerald Group Publishing Limited.

Place, publisher, year, edition, pages
2015. Vol. 11, no 2, p. 175-192
Keywords [en]
Audit failure, Audit quality, Audit report, Bankruptcy, Going concern warning
National Category
Business Administration
Identifiers
URN: urn:nbn:se:miun:diva-25927DOI: 10.1108/JAOC-04-2013-0034Scopus ID: 2-s2.0-84929454730OAI: oai:DiVA.org:miun-25927DiVA, id: diva2:856212
Note

Export Date: 23 September 2015

Available from: 2015-09-23 Created: 2015-09-23 Last updated: 2017-12-01Bibliographically approved

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Öhman, Peter

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