Assessing going concern: The practical value of corporate failure models and auditors' perceptions

Thilina Kuruppu, Fawzi Laswad*, Peter Oyelere

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

Purpose – The purpose of this paper is to ascertain the practical efficacy of statistical corporate failure models in improving auditors' going concern assessment. It also aims to examine auditors' perceptions of corporate failure models as an analytical procedure in this context. Design/methodology/approach – The paper utilises a survey questionnaire with a case study component to evaluate the practical value of corporate failure models for assessing going concern, and to examine auditors' perceptions of such models as an analytical procedure for assessing going concern. Findings – The results indicate that corporate failure models facilitate the formation of more appropriate going concern opinions and increase judgment consensus. Auditors perceive such models as useful in obtaining relevant evidential matter and in mitigating some of the subjectivity involved in assessing going concern. However, the results also indicate that corporate failure models are perceived to be more effective in the planning stages than at the final stages of the audit. Furthermore, auditors are seeking more explicit guidance in auditing standards on the use of corporate failure models for assessing going concern. Originality/value – The study extends previous research by examining the practical efficacy of corporate failure models for assisting auditors to assess going concern in light of human information processing limitations. Further, it examines auditors' perceptions of corporate failure models as an analytical procedure, and the guidance that auditors seek on the use of such models in auditing standards.

Original languageEnglish
Pages (from-to)33-50
Number of pages18
JournalPacific Accounting Review
Volume24
Issue number1
DOIs
Publication statusPublished - Apr 20 2012

Keywords

  • Audit judgement
  • Auditors
  • Business failures
  • Corporate failure models
  • Going concern opinions
  • New Zealand
  • Perception

ASJC Scopus subject areas

  • Accounting
  • Finance

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