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This paper explores the role of textual disclosures in the Management, Discussion, and Analysis (MD&A) section of a firm's SEC 10-K filing in predicting a firm's ability to continue as a going concern. Using a sample of firms that filed for bankruptcy between 1995 and 2012 to identify firms that cease as a going concern, we find that both management's opinion about going concern reported in the MD&A and the linguistic tone of the MD&A together provide significant explanatory power in predicting whether a firm will cease as a going concern. Moreover, the predictive ability of MD&A disclosure is incremental to financial ratios, market-based variables, and even the auditor's going concern opinion. We also find that the incremental predictive ability of MD&A disclosures extends to three years prior to bankruptcy.

We extend research on the effects of local audit office characteristics on audit quality by investigating whether audit offices in highly religious U.S. Metropolitan Statistical Areas (MSAs) exhibit going concern decisions that reflect heightened professional skepticism relative to audit offices in less religious MSAs. Prior research links religiosity to risk aversion and ethical development and suggests audit practice offices in more religious MSAs are more likely to issue going concern opinions because they will assess the effects of mitigating factors in a more skeptical manner. Our results indicate that audit practice offices located in highly religious MSAs are more likely to issue going concern audit opinions, consistent with a more skeptical assessment of mitigating factors. Additional tests provide direct evidence consistent with the argument that these audit offices are more risk averse in issuing going concern opinions. Our findings are relevant to auditors, audit clients, researchers, and regulators.

We study the information content and determinants associated with voluntary management disclosures of going concern (GC) uncertainties by IPO issuers. In terms of information content, we examine IPO price revision and initial return and find robust support that management GC disclosures are associated with downward revisions in the IPO offer price and, upon considering the mediating effects of the price revision, also associated with lower initial returns. In terms of determinants, and after controlling for other factors (e.g., issuer distress, start-up status, size, cash burn), we find that the presence of a management GC disclosure is negatively associated with a proxy for issuer financial incentives to withhold \"bad news\" and positively associated with the extent of risk factors disclosure. Overall, our results provide support for the information content of voluntary management disclosures of GC uncertainties by IPO issuers, the presence of which is associated with agency and risk motivations.

This paper addresses a underlying assumption of financial statements: going concern assumption. The going concern assumption constitutes a foundational premise presuming that the entity will conduct its operations in the forthcoming period (at least 12 months) without significant risk of business interruption. The primary objective of financial reporting is to provide information regarding the entity's financial position and performance to diverse users. Management is obligated to apprise users, and auditors are tasked with scrutinizing the assertion that the entity will continue its operations for a period exceeding 12 months. This paper meticulously examines the regulatory framework grounded in International Financial Reporting Standards and International Standards on Auditing. It particularly scrutinizes the role and significance of auditors in assessing the going concern assumption, encompassing an analysis of factors influencing the auditor's opinion on the going concern assumption and addressing criticisms directed at auditors. Furthermore, the paper explores past experiences in developing models for evaluating going concern assumptions, potentially aiding forensic accountants in uncovering irregularities in financial statements, given the correlation between a heightened bankruptcy risk and fraudulent activities.

Purpose: This paper deals with going concern audit reporting in Bosnia and Herzegovina. The research objectives are to determine whether, in conditions of increased economic uncertainty, auditors issue this type of audit report more frequently, whether the bankruptcy of a company can be predicted based on a going concern audit report, and whether companies that receive this type of audit report engage in audit opinion shopping. Methodology: The research was conducted on a sample of audit reports of 187 companies referring to the period from 2017 to 2021. Content analysis method was used. Results: The average rate of going concern audit reports was 19.2%. Observed by year, the rate of going concern audit reports ranges from 18.1% to 19.9%. All companies that received a going concern audit report in the considered period one or more times are still operating. In 17.5% of cases, companies replaced the auditor after receiving a going concern audit opinion, while in 16.4% of cases, companies replaced the auditor even though they did not receive a going concern audit opinion. Conclusion: The increase in economic uncertainty during the coronavirus pandemic led to only a slight increase in the rate of going concern audit reports. This type of audit report cannot serve as a predictor of the company’s bankruptcy. Companies that receive a going concern audit report do not engage in audit opinion shopping in order to avoid receiving the same type of audit report in the following year.

Auditor going concern modifications (GCMs) are intended to provide market participants with information related to financial distress, and prior research suggests that the disclosure of a GCM elicits a substantial negative market reaction from investors. In this study, we investigate the market reaction to GCMs in a contemporary disclosure regime and consider whether the observed market reaction is confounded by other material disclosures. We find that the majority of GCMs are issued concurrently with earnings announcements (EAs) and that EAs in the year of new GCMs elicit large negative cumulative abnormal returns (CARs). We also find that CARs surrounding GCMs are significantly more negative when GCMs are disclosed with EAs versus following EAs. We then evaluate whether GCMs convey distress that is incremental to EA disclosures by measuring i) the market reaction to GCMs disclosed following EAs, and ii) whether EA CARs are substantially more negative for companies disclosing GCMs with EAs as opposed to after EAs. In both cases, we find that the incremental market response to GCMs is statistically weak and much smaller in economic magnitude than is suggested by prior research. Finally, we find that management disclosures in EAs, rather than the presence of a GCM, appear to convey information that investors use to anticipate bankruptcy. Taken together, these findings suggest that GCMs are confounded by other significant disclosures and that the informational benefits of GCM reporting are significantly smaller than previously thought.

Larger offices of Big 4 auditors are predicted to have higher quality audits for SEC registrants due to greater in-house experience in administering such audits. We test this prediction by examining a sample of 6,568 U.S. firm-year observations for the period 2003–2005 and audited by 285 unique Big 4 offices. Results are consistent with larger offices providing higher quality audits. Specifically, larger offices are more likely to issue going-concern audit reports, and clients in larger offices evidence less aggressive earnings management behavior. These findings are robust to extensive controls for client risk factors and to controls for other auditor characteristics. While the evidence suggests audit quality is higher on average in larger Big 4 offices, we make no claims that audit quality is unacceptably low in smaller offices.

Businesses strive for effective working capital management (WCM) since ineffective WCM influences firms' failure in developing economies. However, the connection between WCM and the going concern of firms has not received significant quantitative attention. Hence, this study examines the impact of WCM on the going concern of manufacturing businesses in Ghana. The study goes beyond the edges and fills the literature gap on WCM and going concerns. Using panel data for 55 large-scale manufacturing companies in Ghana from 2002 to 2022, the study employed the Fixed Effect as the main estimation technique and the Random Effect as the robustness test estimator. The findings affirm the need for working capital management since it influences the going concerns of manufacturing firms. Hence, it is recommended that measures including effective mobilization of inventories, cash, debtors, and creditors should be the main motive of management and owners of the business.

Investors, regulators, and academics question the usefulness of going concern opinions (GCOs). We assess whether GCOs provide incremental information, relative to other predictors of corporate default. Our measure of incremental information is the additional predictive power that GCOs give to a default model. Using data from 1996 to 2015, initially we find no difference in predictive power between GCOs alone and a default model that includes financial ratios. However, there is an imperfect overlap between GCOs and other predictors. We show that GCOs increase the predictive power of several models that include ratios, market variables, probability of default estimates, and credit ratings. Using a model that includes ratios and market variables, GCOs increase the number of predicted defaults by 4.4%, without increasing Type II errors. Our findings suggest that GCOs summarize a complex set of conditions not captured by other predictors of default.

In an audit of a firm's financial statements, the auditor assesses whether there is material uncertainty about the firm's ability to continue as a going concern. If the existence of material uncertainty is confirmed, the auditor considers the adequacy of the firm's disclosures regarding its going concern in the firm's annual report. Most commonly, if the firm's disclosures are adequate, the auditor issues a going-concern opinion in the auditor's report. The auditor modifies his opinion on firm's financial statements because of auditor's going-concern doubt on the firm's ability to continue as a going-concern rarely in specific circumstances. In the present paper we provide an auditor's going-concern prediction model using various combinations of a firm's economic predictors. A sample data of 14,761 firm-year observations from Slovenia during the period 2005-2013 has been used for the model. The results reveal that firms with a going-concern qualification have a worse financial structure (i.e., lower equity financing rates), worse liquidity, worse efficiency, and worse profitability in comparison to firms without this qualification. Using a logistic regression prediction model for a going concern qualification in auditor's report, qualification can be predicted with sufficient accuracy on a sample data of Slovenian firms.