Going Concern Uncertainties: Disclaimer of Opinion versus Unqualified Opinion with Modified Wording

Auditors are permitted to issue either an unqualified opinion with modified wording or a disclaimer of opinion for entities with substantial doubt about their ability to continue as a going concern. This study identifies some of the factors associated with auditors' choice between the two types of going concern reports. Detailed survey instruments were used to collect confidential information about entities that received a disclaimer and entities that received an unqualified modified report. Logistic regression results indicate that firms receiving a disclaimer are more likely to have more bad news items, fewer good news items, and weaker internal controls than firms receiving an unqualified modified report. Firms with disclaimers are also more likely to be larger and publicly traded. Furthermore, auditors who believe that the going concern report offers protection against legal liabilities are more likely to issue a disclaimer if their perceived risk of being sued is high.