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Strategic Auditor Behavior and Going‐Concern Decisions

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  • Ella Mae Matsumura
  • K.R. Subramanyam
  • Robert R. Tucker

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.

Suggested Citation

  • 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, July.
    • Handle: RePEc:bla:jbfnac:v:24:y:1997:i:6:p:727-758
    DOI: 10.1111/1468-5957.00131
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    Cited by:

    1. Charles J. Coates & Robert E. Florence & Kristi L. Kral, 2002. "Financial Statement Audits,a Game of Chicken?," Journal of Business Ethics, Springer, vol. 41(1), pages 1-11, November.
    2. Marilena Mironiuc & Ioan-Bogdan Robu & Mihaela-Alina Robu, 2011. """Going Concern"" And The Effects Of The Operational Cycle Management. An Empirical Study Concerning The Usage Of Financial Analysis For Obtaining Preliminary Proofs In The Task Of," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 2011, pages 41-53, july.
    3. Benoît Pigé, 2000. "Audit quality and Corporate governance : an analysis of French audit regulations [Qualité de l'audit et gouvernement d'entreprise : le rôle et les limites de la concurrence sur le marché de l'audit," Post-Print halshs-03425760, HAL.

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