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Evidence on Auditors Use of Business Continuity Models as an Analytical Procedure

Author

Listed:
  • Nirosh Karuppu
Abstract
Auditors expressing unqualified audit opinions and asserting going concern for companies that subsequently fail is regarded as audit failure and results in considerable disapproval of the auditing profession. Prior research has suggested that corporate failure models, as an analytical procedure, improve the accuracy of auditors’ assessments of going concern. This study utilizes a survey to examine the practical efficacy of such models within the audit decision framework. It is found that corporate failure models facilitate the formation of more appropriate going concern opinions and increase judgment consensus.

Suggested Citation

  • Nirosh Karuppu, 2009. "Evidence on Auditors Use of Business Continuity Models as an Analytical Procedure," Accounting & Taxation, The Institute for Business and Finance Research, vol. 1(1), pages 63-74.
    • Handle: RePEc:ibf:acttax:v:1:y:2009:i:1:p:63-74
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    References listed on IDEAS

    as
    1. David A. Hensher & Stewart Jones, 2007. "Forecasting Corporate Bankruptcy: Optimizing the Performance of the Mixed Logit Model," Abacus, Accounting Foundation, University of Sydney, vol. 43(3), pages 241-264, September.
    2. Ella Mae Matsumura & K.R. Subramanyam & Robert R. Tucker, 1997. "Strategic Auditor Behavior and Going-Concern Decisions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(6), pages 727-758.
    3. Mutchler, JF & Hopwood, W & McKeown, JM, 1997. "The influence of contrary information and mitigating factors on audit opinion decisions on bankrupt companies," Journal of Accounting Research, Wiley Blackwell, vol. 35(2), pages 295-310.
    4. Carolyn A. Windsor, 2002. "Auditors' Predisposition to Provide Fair Judgments: Australian Evidence of Auditors' Level of Moral Reasoning," Australian Accounting Review, CPA Australia, vol. 12(27), pages 51-58, July.
    5. Carcello, Joseph V. & Hermanson, Dana R. & Neal, Terry L., 2003. "Auditor reporting behavior when GAAS lack specificity: the case of SAS No. 59," Journal of Accounting and Public Policy, Elsevier, vol. 22(1), pages 63-81.
    6. Hian Koh & Sen Tan, 1999. "A neural network approach to the prediction of going concern status," Accounting and Business Research, Taylor & Francis Journals, vol. 29(3), pages 211-216.
    7. Kathleen Herbohn & Vanitha Ragunathan & Robert Garsden, 2007. "The horse has bolted: revisiting the market reaction to going concern modifications of audit reports," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(3), pages 473-493, September.
    8. Louwers, TJ, 1998. "The relation between going-concern opinions and the auditor's loss function," Journal of Accounting Research, Wiley Blackwell, vol. 36(1), pages 143-156.
    9. Divesh S. Sharma & Jagdish Sidhu, 2001. "Professionalism vs Commercialism: The Association Between Non-Audit Services (NAS) and Audit Independence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(5-6), pages 595-630.
    10. Tucker, Robert R. & Matsumura, Ella Mae & Subramanyam, K. R., 2003. "Going-concern judgments: An experimental test of the self-fulfilling prophecy and forecast accuracy," Journal of Accounting and Public Policy, Elsevier, vol. 22(5), pages 401-432.
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    More about this item

    Keywords

    Going concern opinions; audit judgment; corporate failure models;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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