Impact of Going Concern Uncertainty on Financial Statement Quality: Management vs. Auditors' Perspectives

Samuel F Johnson-Rokosu
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Samuel F Johnson-Rokosu: Department of Accounting, University of Lagos, Yaba, Nigeria.

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Abstract: This study examines the impact of the uncertainty of the going concern on the quality of the financial statements by comparing the perspectives of management and auditors - a critical, but hitherto unexplored gap in financial reporting. Drawing on theories of agencies, signaling, and stakeholders, research explores how cognitive biases and institutional mechanisms shape risk-assessment and disclosure practices. The sequential mixed method design integrates archive panel data from 1,250 S&P 1500 companies (including Altman Z scores and audit opinions) with responses from 500 financial managers and auditors. Regression and thematic analyses reveal a significant gap in perception: management consistently underestimates risks of concern (β = -0.12, p<0.01), while auditors are more conservative. The quality of governance, and in particular the independence of the audit committee, reduces bias, while the duality of directors exacerbates it. Altman Z-scores are confirmed as reliable predictors of changes in audit opinions (r = -0.82), although emerging risks (e.g. ESG, cyber) require more sophisticated models. AI-assisted tools reduce variability in materiality judgments and increase consistency. The findings support the adoption of standardized, dynamic disclosure frameworks and technology integration in audit practices. By combining cognitive and institutional perspectives, the study provides a reproducible framework for advancing transparency and resilience in financial reporting in the face of uncertainty.

Date: 2025-08-22
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Published in Asian Journal of Economics, Finance and Management , 2025, 7 (1), pp.754-771

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05220117

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