The effects of audit structure and SAS No. 59 on auditor's going-concern opinion decision accuracy

This study examined two questions related to auditors' going-concern opinion decision accuracy. First, this study examined the relationship between audit structure and auditors' going-concern opinion decision accuracy. Consistent with prior research, less than half, i.e., 39 percent, of bankrupt companies received going-concern modified reports prior to their bankruptcy filing. Results indicate that after controlling for bankrupt companies' financial condition, there is no significant difference in the going-concern opinion decision accuracy over the different degrees of audit structure. The results affirm that the effect of structured audit approaches is contingent on the type of audit decision and the degree of audit clients' environmental complexity.; Second, this study investigated the effect of SAS No. 59 on auditors' going-concern opinion decision accuracy. It was speculated that increased auditor's responsibility under SAS No. 59 would increase an auditor's propensity to modify audit reports and the association between such reports and subsequent client bankruptcies. The results of this study indicate that auditors' going-concern decision accuracy has improved after SAS No. 59 became effective. That is, auditors have issued a greater proportion of prior going-concern modified reports for companies that subsequently declared bankruptcy in the post-SAS No. 59 period than in the pre-SAS No. 59 period. The study results provide an explanation of why Raghunandan and Rama and Carcello et al. reached a different conclusion regarding the effects of SAS No. 59 on the auditor's going-concern opinion decision.