Strategic Auditor Behavior and Going‐Concern Decisions

Strategic Auditor Behavior and Going‐Concern Decisions This paper analyzes a game‐theoretic model in which a client can potentially avoid a going‐concern opinion and its self‐fulfilling prophecy by switching auditors. Incumbent auditors are less willing to express a going‐concern opinion the more credible the client's threat of dismissal and the stronger the self‐fulfilling prophecy effect. Similarly, the client is more willing to switch auditors the more likely it is that auditors' reporting judgments will differ and the stronger the self‐fulfilling prophecy effect. Further, with greater noise in the auditor's forecast of client viability, the auditor tends to express fewer going‐concern opinions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

Strategic Auditor Behavior and Going‐Concern Decisions

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Publisher
Wiley
Copyright
Copyright © 1997 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/1468-5957.00131
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes a game‐theoretic model in which a client can potentially avoid a going‐concern opinion and its self‐fulfilling prophecy by switching auditors. Incumbent auditors are less willing to express a going‐concern opinion the more credible the client's threat of dismissal and the stronger the self‐fulfilling prophecy effect. Similarly, the client is more willing to switch auditors the more likely it is that auditors' reporting judgments will differ and the stronger the self‐fulfilling prophecy effect. Further, with greater noise in the auditor's forecast of client viability, the auditor tends to express fewer going‐concern opinions.

Journal

Journal of Business Finance & AccountingWiley

Published: Jul 1, 1997

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