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Auditors' going‐concern judgments: rigid, adaptive, or both?

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  • Andrew J. Rosman

Abstract

Purpose - The purpose of this paper is to examine when auditors' decision behavior is rigid and adaptive in the going‐concern judgment. Because rigid behavior has been found to produce inappropriate outcomes, understanding when decision behavior is rigid or adaptive can lead to improved decision making. Design/methodology/approach - An experiment is conducted using cases based on real companies to produce information search traces as dependent measures that are studied in the ill‐structured and structured parts of the going‐concern task. Findings - Auditors are adaptive in ill‐structured tasks and rigid in structured tasks as predicted by theory. Evidence of flawed decision making commonly found in studies of fixation and related concepts was not found. Research limitations/implications - The findings suggest the importance of explicitly accounting for task structure when studying decision behavior in situated contexts. Future research could assess whether task structure similarly impacts behavior in non‐auditing contexts. Practical implications - Researchers and practitioners have long been concerned about inappropriate rigid behavior. This paper helps practitioners better understand when rigid or adaptive behavior is likely to occur to improve decision making. Originality/value - Taking a novel approach to reconcile two well established but conflicting bodies of literature by focusing on “when” not “whether” people are rigid or adaptive, this paper resolves a long‐standing paradox. The implication for the literature is that reframing the question and directly measuring behavior demonstrates that individuals are neither rigid nor adaptive, but can be both as they follow behavior that is consistent with the demands of the task when the demands are defined in terms of task structure.

Suggested Citation

  • Andrew J. Rosman, 2011. "Auditors' going‐concern judgments: rigid, adaptive, or both?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 10(1), pages 30-45, February.
    • Handle: RePEc:eme:rafpps:v:10:y:2011:i:1:p:30-45
    DOI: 10.1108/14757701111113802
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    References listed on IDEAS

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    Cited by:

    1. Marius Hasslinger & Michael Olbrich & David Rapp, 2017. "Concerned about Going Concern: When do Entities in Liquidation have to be Considered a Non-Going Concern According to IFRS?," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2017(1), pages 31-61.
    2. Tara Ioan Gheorghe, 2011. "The Going Concern - Theory And Practice In The Financial Audit," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 631-635, December.

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