AAA Spark Meeting of Regions

Executive Teamwork and Auditor Going Concern Opinions

• In Event: Going Concern Opinions

Abstract

Auditing Standard (AS) 2415 states that auditors should assess going concern risk based on their knowledge of not only the entity and its business but also its management. Despite the importance of managerial attributes for the auditors’ judgment, little is known of the extent to which managerial characteristics can affect auditors’ going concern reporting decision. In this study, I focus on management teamwork, proxied by CEO-CFO co-tenure, as a factor that could influence the auditor’s judgment. I posit that the CEO-CFO pair’s strong teamwork could help the pair better make and execute management plans, thereby decreasing auditors’ doubt about the entity’s ability to continue as a going concern. I find that longer CEO-CFO co-tenure is negatively associated with the likelihood of receiving a going concern opinion. I also find some evidence that auditors for firms with the longer CEO-CFO co-tenure are less likely to commit Type I (false positive) errors. These results are more pronounced for firms with Big 4 auditors, as opposed to non-Big 4 auditors, suggesting that Big 4 auditors are better able to incorporate and interpret management teamwork in their going concern risk assessment. Especially, for Type I errors, Big 4 auditors for firms with long CEO-CFO co-tenure are less likely to commit Type I errors, while non-Big 4 auditors for firms with long CEO-CFO co-tenure are more likely to commit those errors. For Type II errors, I do not find that CEO-CFO co-tenure is associated with Type II errors (false negative).

Author

• Youree Kim, University of Connecticut