An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

George E. Nogler
University of Massachusetts - Lowell

Abstract: The bankruptcy of Enron in December 2001 and the subsequent demise of Arthur Andersen were events that brought intense scrutiny to the accounting profession. That these events would have an effect on auditor going concern qualification judgments would not be surprising. This study looks at 1,204 publicly traded firms which filed bankruptcy in the period January 1, 1997 through December 31, 2005. The observations are divided into pre-Enron (802 observations) and post-Enron, (402 observations) periods. The rate of qualification in the pre-Enron period was 44.5%. This increased to 61.9% in the post-Enron period. Findings here suggest that auditors, in the presence of a consistent standard (SAS No. 59), nevertheless modify their decision making processes as a result of external events. This study further looks at the impact of outliers on this decision and on differences by firm size and industry effects.

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