 Are Auditors Professionally Skeptical? Evidence from Auditors’ Going‐Concern Opinions and Management Earnings ForecastsMei Feng and Chan Li Journal of Accounting Research, 2014, vol. 52, issue 5, 1061-1085 Abstract: We examine whether auditors exercise professional skepticism about management earnings forecasts when making going‐concern decisions. Using publicly issued management earnings forecasts as a proxy for earnings forecasts provided by managers to auditors, we find that management earnings forecasts are negatively associated with both auditors’ going‐concern opinions and subsequent bankruptcy. The weight auditors put on management forecasts in the going‐concern decision is not significantly different from the weight implied in the bankruptcy prediction model. Moreover, compared with the bankruptcy model, auditors assign a lower weight to management forecasts they perceive as being less credible, including those (1) issued by managers who issued optimistic forecasts in the previous two years, and (2) predicting high earnings increases or high earnings. Taken together, our evidence is consistent with auditors being professionally skeptical about management earnings forecasts when making going‐concern decisions. Date: 2014 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:52:y:2014:i:5:p:1061-1085 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman More articles in Journal of Accounting Research from Wiley Blackwell |
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