Susan Parker
Santa Clara University
Gary Peters
University of Arkansas
Howard F. Turetsky
San Jose State University
Abstract: Information available to the auditor in making going concern assessments includes the client's corporate governance characteristics. Such corporate governance characteristics reflect attributes of control, oversight, and/or support of management's strategies and actions intended to overcome periods of financial distress, and may consequently affect the auditor's going-concern assessment. This study uses survival analysis techniques to investigate the impact of certain corporate governance characteristics on the auditor's assessment of whether to issue a going concern modification. We follow a sample of 176 financially distressed firms selected from the time period 1988-1996. Using Cox proportional hazard regression, we find that the auditor is less likely to issue a going concern modification in the presence of greater insider and block-holder ownership. On the other hand, the auditor is more likely to issue a going concern modification when the CEO is replaced in the distress period. We also confirm across time the positive association between a going concern modification and higher percentages of independent audit committee members (Carcello and Neal 2000), and the negative association between likelihood of modification and the current ratio.
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