'Going Concern Opinions (GCO's) in Theory and Practice' - FAR Masterclass report 9 December 2019 - Masterclass ​by Marshall Geiger, Anna Gold and Philip Wallage

11 February 2020

'Going Concern Opinions (GCO's) in Theory and Practice' - FAR Masterclass report  9 December 2019 - Masterclass ​by Marshall Geiger, Anna Gold and Philip Wallage

Marshall A. Geiger is professor at the University of Richmond, Anna Gold is professor at the Vrije Universiteit Amsterdam and the Norwegian School of Economics (NHH) and Philip Wallage is professor at the Vrije Universiteit Amsterdam and the Universiteit van Amsterdam. 

The research they present is based upon the FAR research project ‘A Synthesis of Research on Auditor Reporting on Going- Concern Uncertainty (Project 2017A01)’, which can be found on the FAR-website.

On 9 December 2019, Marshall Geiger, Anna Gold and Philip Wallage presented a masterclass on Going Concern Opinions (GCOs). In this report, a summary of the masterclass is presented. The main purpose of the session was to communicate the main results of their literature synthesis (see Part I below) and to extend and corroborate the findings of the focus group meeting that was part of the research project, by means of an in-depth discussion concerning eight broad GCO topics (see Part II below).

Part I: Main results from the literature synthesis 

The literature review was organized along three broad categories: (1) determinants of GCOs; (2) accuracy of GCOs; and (3) consequences of GCOs.

(1) Determinants: client characteristics, auditor characteristics, auditor-client relationship, regulatory oversight

Client characteristics

Clients are more likely to get a GCO if they:

  • Have a new CFO.
  • Have a poor work place environment for employees.
  • Fail to remediate internal control deficiencies.
  • Have a CEO with friendship ties to audit committee members.
  • Employ a business strategy of innovation & have a fluctuating product mix. 
  • Engage in controversial activities related to customers, employees, the environment or the community. 
  • Have financial statement filing delays. 
  • Are overly optimistic:
    • Have overly optimistic financial forecasts.
    • Have over-confident management.
    • Report financial results more aggressively/positively (i.e., less conservatively).

Auditor characteristics

Auditors are more likely to issue a GCO if they:

  • Are in an office (US) that had fewer type I errors in the previous year (i.e. there was a GCO without subsequent failure). 
  • Are non-Big 4 auditors in a state (area) that issued a lot of GCOs in the prior year.

For the presentation slides, click here (opens in PP).

Download the full masterclass report here (opens in PDF).

To listen to a recent FAR podcast on Going Concern Opinions with professor Wallage, please click here.

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