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    The Global Financial Crisis: U.S. Bankruptcies and...
    research summary posted October 22, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.04 Going Concern Decisions, 12.0 Accountants’ Reports and Reporting, 12.01 Going Concern Decisions 
    The Global Financial Crisis: U.S. Bankruptcies and Going-Concern Audit Opinions
    Practical Implications:

    As the PCAOB, SEC and other regulators assess auditors’ reporting decisions in the wake of the GFC, the results of our study provide evidence that the propensity to issue a GCO to a financially stressed and subsequently bankrupt client increased during the GFC. Our results suggest that critics of the auditors’ role during the GFC may have overstated a perceived problem based on relatively few bankruptcies without a prior GCO. At the same time, our results indicate that this increased scrutiny was similar for Big 4 and non-Big 4 auditors, but that it was largely restricted to smaller clients. Auditor going-concern modification decisions remain a complex process that is not fully understood or easily captured.


    For more information on this study, please contact Marshall Geiger via email at


    Geiger, M.A., K. Raghunandan, and W. Riccardi. (2014). The global financial crisis: U.S. bankruptcies and going-concern audit opinions. Accounting Horizons 28 (1): 59-75.

    going concern; bankruptcy; audit opinion; financial crisis
    Purpose of the Study:

    The reporting responsibility of auditors with respect to financially troubled clients received renewed attention from standard setters and regulators in light of the “Global Financial Crisis” (GFC). Both auditing regulators and the business press had complained that auditors did not provide adequate warning in their reports prior to many companies’ bankruptcy filings during the GFC. Accordingly, the purpose of this study is to examine whether auditors’ propensity to issue going-concern audit opinions (GCO) decreased after the onset of the global financial crisis. We also examine whether the observed effects differ for the largest audit firms (i.e., the “Big 4”). In additional analyses, we further examine whether our detected results differ with client size.

    Design/Method/ Approach:

    The study is based on a sample of financially stressed U.S. companies that entered into bankruptcy between 2004 and 2010. Sample firms’ bankruptcies are coded as being during the GFC if the associated audit opinion is dated after September 1, 2008. 


    Our empirical findings are summarized as follows:

    • Overall, we find that the auditors’ propensity to issue going-concern modified opinions increased after the onset of the GFC. This suggests that, collectively, auditors in the U.S. were more likely to provide a signal of clients’ impending bankruptcy during the GFC.
    • We find no difference in this effect for auditors of different size (i.e., Big 4 versus non-Big 4). That is, both Big 4 and non-Big 4 auditors significantly increased the probability of issuing a going-concern modified audit opinion to subsequently bankrupt clients after the start of the GFC.
    • Of particular interest, we find that for both Big 4 and non-Big 4 auditors, the observed increase in the likelihood of issuing a going-concern modified audit opinion is restricted to smaller clients.
    • There does not appear to be any change in auditors’ weighting of our financial stress variables between the pre- and post-GFC periods. 
    Accountants' Reporting, Auditor Judgment
    Going Concern Decisions, Going Concern Decisions