Is there a Dark Side to Societal Trust in Auditors’ Going Concern Assessments?

2021 ◽  
Author(s):  
Jaehan Ahn ◽  
Herita Akamah
Keyword(s):  
Lower Incidence ◽  
Dark Side ◽  
Type I ◽  
Litigation Risk ◽  
Type Ii ◽  
Going Concern ◽  
Beneficial Effects ◽  
Financially Distressed

Amidst heightened concern among U.S. and international regulators, is the need to examine reasons why auditors are not issuing going-concern opinions (GCOs) to financially distressed clients who seem to warrant such opinions. We examine societal trust as one such reason, finding a lower incidence of GCOs with high societal trust. Moreover, we find that high societal trust is associated with fewer GCO Type I misclassifications, but more GCO Type II misclassifications. In addition, the association between societal trust and GCOs does not disappear for severely distressed clients, suggesting that auditors do not adequately perceive clients that warrant GCOs when the clients are in high trust countries, and illuminating a dark side to societal trust. Moreover, low litigation risk and auditor-management relationship longevity exacerbate this dark side of societal trust. Our study highlights how societal trust can have beneficial effects across multiple economic contexts while posing problems in the auditing context.

The Effect of Stage of Development and Financial Health on Auditor Decision Behavior in the Going-Concern Task

1999 ◽  
Vol 18 (1) ◽  
pp. 37-54 ◽  
Author(s):  
Andrew J. Rosman ◽  
Inshik Seol ◽  
Stanley F. Biggs
Keyword(s):  
Information Acquisition ◽  
Type I ◽  
Type Ii ◽  
Financial Health ◽  
Inference Problem ◽  
Going Concern ◽  
Start Up ◽  
Mitigating Factors ◽  
Type Ii Errors ◽  
Problem Representations

The effect of different task settings within an industry on auditor behavior is examined for the going-concern task. Using an interactive computer process-tracing method, experienced auditors from four Big 6 accounting firms examined cases based on real data that differed on two dimensions of task settings: stage of organizational development (start-up and mature) and financial health (bankrupt and nonbankrupt). Auditors made judgments about each entity's ability to continue as a going concern and, if they had substantial doubt about continued existence, they listed evidence they would seek as mitigating factors. There are seven principal results. First, information acquisition and, by inference, problem representations were sensitive to differences in task settings. Second, financial mitigating factors dominated nonfinancial mitigating factors in both start-up and mature settings. Third, auditors' behavior reflected configural processing. Fourth, categorizing information into financial and nonfinancial dimensions was critical to understanding how auditors' information acquisition and, by inference, problem representations differed across settings. Fifth, Type I errors (determining that a healthy company is a going-concern problem) differed from correct judgments in terms of information acquisition, although Type II errors (determining that a problem company is viable) did not. This may indicate that Type II errors are primarily due to deficiencies in other stages of processing, such as evaluation. Sixth, auditors who were more accurate tended to follow flexible strategies for financial information acquisition. Finally, accurate performance in the going-concern task was found to be related to acquiring (1) fewer information cues, (2) proportionately more liquidity information and (3) nonfinancial information earlier in the process.

scholarly journals Sulfatide Attenuates Experimental Staphylococcus aureus Sepsis through a CD1d-Dependent Pathway

2013 ◽  
Vol 81 (4) ◽  
pp. 1114-1120 ◽  
Author(s):  
Jakub Kwiecinski ◽  
Sara Rhost ◽  
Linda Löfbom ◽  
Maria Blomqvist ◽  
Jan Eric Månsson ◽  
...  
Keyword(s):  
Staphylococcus Aureus ◽  
Cell Subset ◽  
Early Response ◽  
Nkt Cells ◽  
Type I ◽  
Type Ii ◽  
Microbial Infection ◽  
Necrosis Factor Alpha ◽  
Content Type ◽  
Beneficial Effects

ABSTRACTNatural killer T (NKT) lymphocytes are implicated in the early response to microbial infection. Further, sulfatide, a myelin self-glycosphingolipid, activates a type II NKT cell subset and can modulate disease in murine models. We examined the role of NKT cells and the effect of sulfatide treatment in a murine model ofStaphylococcus aureussepsis. The lack of CD1d-restricted NKT cells did not alter survival after a lethal inoculum ofS. aureus. In contrast, sulfatide treatment significantly improved the survival rate of mice withS. aureussepsis, accompanied by decreased levels of tumor necrosis factor alpha and interleukin-6 in the blood. The protective effect of sulfatide treatment depended on CD1d but not on type I NKT cells, suggesting that activation of type II NKT cells by sulfatide has beneficial effects on the outcome ofS. aureussepsis in this model.

Audit Firm Size and Going-Concern Reporting Accuracy

2006 ◽  
Vol 20 (1) ◽  
pp. 1-17 ◽  
Author(s):  
Marshall A. Geiger ◽  
Dasaratha V. Rama
Keyword(s):  
Firm Size ◽  
Type I ◽  
Type Ii ◽  
Reporting Accuracy ◽  
Audit Firm ◽  
Reporting Error ◽  
Going Concern ◽  
Big 4 ◽  
Audit Firms ◽  
Second Tier

Prior research suggests that the Big 4 audit firms are of higher quality than are non-Big 4 firms. However, existing tests for an association between audit firm size and reporting accuracy are indirect and provide mixed results. Our study extends this line of research by examining whether the Big 4 audit firms exhibit higher quality reporting by having fewer “audit-reporting errors” in the context of issuing going-concern modified reports. Our analyses examine both types of going-concern reporting errors (i.e., type I errors—modified opinions rendered to subsequently viable clients; and type II errors—unmodified opinions rendered to subsequently bankrupt clients) over an 11-year period. We also examine reporting error rate differences between the national second-tier firms and regional/local third-tier firms. Our findings indicate that both type I and type II error rates for Big 4 audit firms are significantly lower compared to non-Big 4 firms. In contrast, we find no significant differences between the national second-tier and regional/local third-tier audit firms with respect to either type of reporting error. Our results provide evidence about a Big 4 audit quality difference in reporting on client's going-concern problems.

Rules Rather than Discretion in Audit Standards: Going-Concern Opinions in Belgium

2009 ◽  
Vol 84 (5) ◽  
pp. 1395-1428 ◽  
Author(s):  
Joseph V. Carcello ◽  
Ann Vanstraelen ◽  
Michael Willenborg
Keyword(s):  
Board Of Directors ◽  
Type I ◽  
Type Ii ◽  
Type I Errors ◽  
Going Concern ◽  
Major Revision ◽  
Ex Post ◽  
Type Ii Errors ◽  
Audit Standards ◽  
Ex Post Analysis

ABSTRACT: We study going-concern (GC) reporting in Belgium to examine the effects associated with a shift toward rules-based audit standards. Beginning in 2000, a major revision in Belgian GC audit standards took effect. Among its changes, auditors must ascertain whether their clients are in compliance with two “financial-juridical criteria” for board of directors' GC disclosures. In a study of a sample of private Belgian companies, we report two major findings. First, there is a decrease in auditor Type II errors, particularly by non-Big 6/5 auditors for their clients that fail both criteria. Second, there is an increase in Type I errors, again particularly for companies that fail both criteria. We also conduct an ex post analysis of the decrease in Type II errors and the increase in Type I errors. Our findings suggest the standard engenders both favorable and unfavorable effects, the net of which depends on the priorities assigned to the affected parties (creditors, auditors, companies, and employees).

scholarly journals Management of Patients with Hereditary Angioedema During the COVID-19 Pandemic

2021 ◽  
Vol 19 (3) ◽  
pp. 166-173
Author(s):  
Eray YILDIZ ◽  
Şevket ARSLAN ◽  
Fatih ÇÖLKESEN ◽  
Filiz Sadi AYKAN ◽  
Recep EVCEN ◽  
...  
Keyword(s):  
Hereditary Angioedema ◽  
Clinical Symptoms ◽  
Type I ◽  
Type Ii ◽  
Kinin System ◽  
Beneficial Effects ◽  
Phone Calls ◽  
History Of ◽  
Kallikrein Kinin System

Objective: The aim of this study was to determine the clinical course and treatment outcomes of patients with hereditary angioedema (HAE) after infection with coronavirus disease 2019 (COVID-19). Materials and Methods: Thirty-nine patients with HAE were included in this study. These patients were regularly followed up over phone calls since the first COVID-19 case was seen in our country. Patients were asked to visit the hospital if there was a history of contact with a confirmed COVID-19 patient or if the patient developed clinical symptoms of COVID-19.Results: There were 21 (54%) patients with type I HAE, and 18 (46%) with type II HAE. All patients received treatment for angioedema attacks (C1-inhibitor [C1-INH], icatibant), and seven (20%) received long-term prophylaxis (danazol). Treatment for attacks was continued for all patients during the pandemic. Patients taking danazol were switched to long-term prophylaxis using the C1-INH concentrate. Eleven (28%) patients with HAE developed COVID-19 during this study. Only one patient had severe COVID-19. Six patients (54.5%) were diagnosed with type II HAE, and five (45.5%) were diagnosed with type I HAE. The most common COVID-19 symptoms were fever (7/11; 64%) and myalgia (6/11; 55%). Mild angioedema attacks were experienced by 36% (4/11) of the HAE patients diagnosed with COVID-19. Icatibant was used in all patients.Conclusion: Agents used for HAE block the kallikrein-kinin system and may be useful in the treatment of COVID-19. Considering their beneficial effects on COVID-19, it is recommended that HAE patients should continue the use of agents blocking the kallikrein-kinin system. Keywords: COVID-19, hereditary angioedema, kallikrein-kinin system, bradykinin, C1-INH

The Impact of Noncompliance and Internal Control Deficiencies on Going Concern Audit Opinions and Viability of Nonprofit Charitable Organizations

2018 ◽  
Vol 35 (3) ◽  
pp. 637-664
Author(s):  
Nancy Chun Feng
Keyword(s):  
Survival Analysis ◽  
Internal Control ◽  
Type I ◽  
Type Ii ◽  
Charitable Organizations ◽  
Audit Opinion ◽  
Going Concern ◽  
Time Period ◽  
Internal Control Deficiencies ◽  
The Impact

This study investigates whether material noncompliance ( MNC) with laws and regulations and internal control deficiencies ( ICDs) in a nonprofit charitable organization (NPO) affect the likelihood that the NPO receives a going concern audit opinion ( GCO) and the viability of the NPO. I find that noncompliance and ICDs are positively associated with the likelihood that an NPO receives a GCO. The results also suggest that the entity-level ICDs increase auditors’ propensity to issue a GCO but ICDs that occur at the federal program level do not. The evidence from the survival analysis shows that only ICDs have significant influence on the viability of NPOs. The results of the survival analysis also show that GCO-receiving NPOs are more likely to discontinue operations than their financially distressed peers, indicating that either auditors are correct in issuing the GCOs or GCOs become self-fulfilling prophecies. Analyses of Type I/Type II misclassifications suggest that auditors make more Type I errors than Type II ones, and the accuracy of going concern decisions seems to vary by auditor type, sector, and time period. The overall findings of this study provide evidence of hidden costs of noncompliance and ICDs in NPOs, which can motivate regulators and the managers of NPOs to enhance NPOs’ governance to lower the probability of getting a GCO and improve the NPO’s sustainability.

Auditor Going Concern Opinions and Bank Systemic Risk: Evidence from the 2007–2009 Financial Crisis

2020 ◽  
Vol 39 (3) ◽  
pp. 1-28
Author(s):  
Anne Albrecht ◽  
Matthew Glendening ◽  
Kyonghee Kim ◽  
Raynolde Pereira
Keyword(s):  
Financial Crisis ◽  
Systemic Risk ◽  
Spillover Effects ◽  
Type I ◽  
Litigation Risk ◽  
Type I Errors ◽  
Crisis Period ◽  
Going Concern ◽  
Big 4 ◽  
Type Ii Errors

SUMMARY Following the 2007–2009 financial crisis, regulators and investor groups alleged that auditors were reluctant to issue going concern opinions (GCOs) to distressed banks during the crisis, raising questions about the quality of auditors' GCO decisions. This paper investigates whether systemic risk influences auditors' GCO decisions during the crisis due to potential adverse spillover effects. Using 496 bank-year observations, we find that auditors are less likely to issue a GCO to systemically risky banks, and this auditor behavior reduces Type I errors without increasing Type II errors. The effects are more pronounced during the crisis period, especially for banks that are large and connected, have lower litigation risk, or are audited by Big 4 auditors or industry specialists. Overall, our findings suggest that during the crisis period, auditors were less likely to over-issue GCOs to systemically risky banks, resulting in more accurate GCOs. JEL Classifications: M42; G20.

Managerial Ability and the Accuracy of the Going Concern Opinion

2018 ◽  
Vol 18 (1) ◽  
pp. 29-52 ◽  
Author(s):  
Nathan R. Berglund ◽  
Donald R. Herrmann ◽  
Bradley P. Lawson
Keyword(s):  
Type I ◽  
Type Ii ◽  
Managerial Ability ◽  
Type I Errors ◽  
Bankruptcy Risk ◽  
Going Concern ◽  
Information Signal ◽  
Going Concern Opinion ◽  
Prior Literature ◽  
Type Ii Errors

ABSTRACT Current audit guidance directs the auditor to modify their opinion in the presence of significant doubt about their client's ability to continue as a going concern. This paper examines whether managerial ability influences the accuracy of auditors' going concern information signal. Following prior literature, we assess accuracy based on the subsequent viability of the client. We find that, while managerial ability decreases the risk of Type I errors (the auditor issues a going concern opinion for a firm that subsequently remains viable), managerial ability increases the risk of Type II errors (the auditor issues a standard unqualified report for a firm that subsequently files for bankruptcy). Considering prior research indicates that the auditor's opinion provides important information to the market, this finding has important public interest implications regarding the signaling of bankruptcy risk to investors and creditors by auditors' going concern opinion.

Auditor Size and Going Concern Reporting

2018 ◽  
Vol 37 (2) ◽  
pp. 1-25 ◽  
Author(s):  
Nathan R. Berglund ◽  
John Daniel Eshleman ◽  
Peng Guo
Keyword(s):  
Type I Error ◽  
Type I ◽  
Type Ii ◽  
Type Ii Error ◽  
Financial Health ◽  
Positive Type ◽  
Going Concern ◽  
Big 4 ◽  
Going Concern Opinion ◽  
Matching Techniques

SUMMARY Auditing theory predicts that larger auditors will be more likely to issue a going concern opinion to a distressed client. However, the existing empirical evidence on this issue is mixed. We attribute these mixed results to a failure to adequately control for clients' financial health. We demonstrate how properly controlling for clients' financial health reveals a positive relationship between auditor size and the propensity to issue a going concern opinion. We corroborate our findings by replicating a related study and showing how the results change when financial health variables are added to the model. In supplemental analysis, we find that Big 4 auditors are more likely than mid-tier auditors (Grant Thornton and BDO Seidman) to issue going concern opinions to distressed clients. We also find that, compared to other auditors, the Big 4 are less likely to issue false-positive (Type I error) going concern opinions. We find no evidence that the Big 4 are more or less likely to fail to issue a going concern opinion to a client that eventually files for bankruptcy (Type II error). Our results are robust to the use of a variety of matching techniques. JEL Classifications: M41; M42.

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