Published In
Auditing-A Journal of Practice & Theory
Document Type
Pre-Print
Publication Date
11-1-2024
Subjects
Management disclosure, Management disclosure responsibility
Abstract
A current FASB standard requires management to assess the ability of the entity to continue as a going concern (GC) and disclose any substantial doubt about such. Using contextualized experiments wherein the auditor does not issue a GC opinion for an entity that subsequently fails, we study the effects of management disclosure, increased management disclosure responsibility, and auditor disclosure on auditor blame, a proxy for auditor liability. Consistent with predictions based on the Culpable Control Model, we find (1) management disclosure of substantial doubt increases auditor liability; (2) when management has not disclosed substantial doubt, auditor liability is greater under higher management disclosure responsibility; and (3) including a GC-related critical audit matter (CAM) in the audit report mitigates auditor liability. These findings provide insights regarding consequences to auditors of management disclosure practices, specifically regarding the FASB’s GC standard and the efficacy of auditor disclosure via CAMs to mitigate those consequences.
Rights
© Copyright the author(s) 2024
Locate the Document
DOI
10.2308/AJPT-2022-008
Persistent Identifier
https://archives.pdx.edu/ds/psu/42774
Citation Details
Published as: Owens, J., Saunders, K. K., Schachner, S., & Thornock, T. A. (2024). How Management Disclosure and Auditor Disclosure Affect Auditor Liability: The Case of the Going Concern Financial Accounting Standard. Auditing: A Journal of Practice & Theory, 43(4), 143–162. https://doi.org/10.2308/ajpt-2022-008
Description
This is the author’s version of a work that was accepted for publication. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published as: Owens, J., Saunders, K. K., Schachner, S., & Thornock, T. A. (2024). How Management Disclosure and Auditor Disclosure Affect Auditor Liability: The Case of the Going Concern Financial Accounting Standard. AUDITING: A Journal of Practice & Theory, 1-20.