Why Does an Auditor Not Issue a Going Concern Opinion for a Failing Company? Impact of Financial Risk, Time to Bankruptcy, and Cognitive Style

Autor:	Erkki K. Laitinen, Teija Laitinen
Rok vydání:	2020
Předmět:	050208 finance business.industry Financial risk media_common.quotation_subject 05 social sciences Going concern Accounting Audit Affect (psychology) Archival research Bankruptcy 0502 economics and business 050207 economics Psychology business Seriousness media_common Cognitive style
Zdroj:	Theoretical Economics Letters. 10:131-153
ISSN:	2162-2086 2162-2078
Popis:	This study investigates the effects of client’s financial risk, time to bankruptcy, and auditor’s cognitive style on issuing a Going Concern Opinion (GCO) for failing companies. Empirical tests are based on financial data from 328 bankrupt firms and peer review data from 172 auditors. Cognitive style on an intuitive-analytic dimension is approximated by the degree of auditor’s compliance with the ISA standards for analytic procedures in peer review. Empirical findings support research hypotheses and show that seriousness of the financial risk and time distance to bankruptcy are important determinants of GC judgment accuracy. They also show that the performance of the cognitive style of the auditor is related to the fit between the cognitive style and the characteristics of the GC situation. The results indicate that an auditor’s individual characteristics, i.e. cognitive style, affect his/her decision making when issuing GCO. This study is the first approach that systematically investigates the relationship between financial risk, distance to bankruptcy, and cognitive style on GC judgment in an archival research.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::b17a9d0fd32780ef66f52c419df19b87 https://doi.org/10.4236/tel.2020.101009 Zobrazit plný text záznamu