Academic journal article Academy of Accounting and Financial Studies Journal

Going Concern Opinions Useful in Conveying Information regarding the Computer Industry and Firms

Academic journal article Academy of Accounting and Financial Studies Journal

Going Concern Opinions Useful in Conveying Information regarding the Computer Industry and Firms

Article excerpt


This study provides evidence that going concern opinions contain useful information about the computer industry as well as about the specific computer firms announcing going concern opinions in the financial media. Three out of the five computer industries with firms that received a going concern opinion, 60 percent, that appeared in the financial media from 1989 through 1996 are associated with significant stock price reactions by rivals of the announcing firms. This is slightly higher than the 50 percent rate noted for all industries (computer and non-computer industries) included in the study.


The information content of audit opinions has been scrutinized in the past. The main focus of the discussions has been whether audit opinions contain useful information for financial statement users. In 1988, Statement on Auditing Standard (SAS) No. 34, The Auditor's Considerations When a Question Arises About an Entity's Continued Existence was superseded by SAS No. 59, The Auditor's Consideration of an Entities Ability to Continue as a Going Concern (AICPA, 1988). SAS No. 59 eliminated the "subject to" audit opinion qualification and in its place required unqualified audit opinions to include a separate explanatory paragraph in going concern situations. The purpose of the audit opinion change was rooted in decade-old discussions surrounding the information content of auditors' opinions and their usefulness to financial statement users. The idea was that the "subject to" wording was an ineffective and possibly misunderstood means of conveying the significance of the auditor's going concern assessment. The addition of a separate explanatory paragraph, it was thought, would enhance the information usefulness of the auditor's report in conveying the existence of going concern issues.

This study examines the effects going concern opinion announcements under SAS No. 59 have on selected industry rivals of the audited firms. The study examined firms in many industries; however, this paper reports the results related to firms in the computer industry. Of interest was whether firms in the computer industry and the computer industry as a whole respond differently compared with firms in other industries, or other industries.


The information content of audit opinions has been examined in various studies to determine whether audit qualifications contain new information useful to investors. For instance, in a study performed by Dopuch et al . (1986), firms receiving " subj ect to" qualified audit opinions were shown to suffer significant negative stock price reactions after the release of the information about the audit's outcome through a media announcement to the public. Such an announcement is presumed to convey new information, bringing about stock price adjustments as traders react. In contrast, related studies (Chow & Rice, 1982; Dodd, et al, 1984) show little evidence of a significant abnormal return at the filing date of the 10-K or annual report when the statements include a qualified audit opinion. This difference suggests that market participants are better able to monitor media announcements, resulting in a more efficient information dissemination process. Blay and Geiger (2001) indicate that a naive measure of market expectations provides information to the market that is incremental to previously developed measures when using market reaction as an indication of changed expectations.

Jones (1996) indicates that going concern opinions contain new information about announcing firms that is subsequently incorporated into the announcing firm's equity valuation, going concern opinions are issued when auditors doubt a firm's ability to remain solvent over the next operating period and formally issue a "subject to" qualified opinion. When a going concern opinion is issued, new negative information about the audited firm is released to the investing public, usually resulting in a downward stock price reaction. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.