Strategic Auditor Behavior and Going‐Concern Decisions

Ella Mae Matsumura, K.R. Subramanyam and Robert R. Tucker

Journal of Business Finance & Accounting, 1997, vol. 24, issue 6, 727-758

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.

Date: 1997
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