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Are auditors affected by internal control weakness disclosures? Evidence from going concern opinions
Dan Li,
Georgia Institute of Technology
ABSTRACT. The purpose of this study is to examine whether auditors are more likely to issue going concern audit opinions for firms with internal control deficiencies (ICDs). I find that auditors are more likely to issue going concern opinions to those firms with material weaknesses and other deficiencies (control deficiencies and significant deficiencies) when firms iare subject to the internal control requirements of Section 302 of the Sarbanes-Oxley Act of 2002(SOX). However, I find no such relation between other deficiencies and auditors’ going concern opinions after Section 404 of SOX comes into effect, while the positive association between material weakness and going concern opinions are still persistent. The findings are important in showing that ICDs can negatively affect auditors'decision making processes. The result also implies that issuing going concern opinions can be used as a means by auditors to reduce increased litigation risk shifted by management.
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