Auditors' views on the type of audit report issued to entities with going concern uncertainties

When auditors have determined that there is substantial doubt about a client's ability to continue as a going concern, they are permitted to issue either an unqualified modified report or a disclaimer of opinion. However, there is virtually no authoritative guidance nor published research that auditors could use for determining which type of going concern report to issue. As a first step towards the understanding of this reporting decision, this study reports the views of audit partners on the importance of various factors that could influence their choice between the two types of reports that are permitted under current reporting standards. Data for this study was provided by 208 audit partners. Their responses provide a ranking of the importance of an entity's good and bad news characteristics, selected items of internal control, financial ratios and auditors' perceptions of litigation risk and their relationships with their clients. The results can serve as a decision aid for auditors that want to compare their individual beliefs about the importance of these factors to the beliefs of other auditors. In addition, the extent of disagreement about the factors is also examined. Results of the multivariate analysis of variance (MANOVA) indicate that partners from Big 6 accounting firms differ from partners of non-Big 6 firms in the importance given to good and bad news characteristics, internal control items and financial ratios. The MANOVA results also indicate that the partners' importance ratings depend on whether the client is publicly traded. Importance ratings also differed between firms that received disclaimers and firms that received unqualified modified reports.