Bank loan officers' reactions to audit reports issued to entities with litigation and going concern uncertainties

Randall E. LaSalle, Asokan Anandarajan

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24 Scopus citations

Abstract

This study examines whether bank loan officers differ in their reactions to financial statements when they are accompanied with a disclaimer of opinion rather than an unqualified report with an explanatory paragraph. Using between-subjects experiments, the study investigates loan officers' reactions to entities involved with either litigation or going concern uncertainties. Results for litigation uncertainties show that a disclaimer (1) reduces the loan officers' willingness to grant a line of credit, (2) decreases loan officers' assessment of the entity's ability to service their debt, (3) reduces the assessed likelihood that the entity can improve its profitability, and (4) increases the point spread that would be charged if the entity was granted a loan. The results for going concern uncertainties show significant differences for only the first two of the above types of loan officer reactions.

Original languageEnglish (US)
Pages (from-to)33-40
Number of pages8
JournalAccounting Horizons
Volume11
Issue number2
StatePublished - Dec 1 1997

All Science Journal Classification (ASJC) codes

  • Accounting

Keywords

  • Data are available from the first author

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