The effect of financial crisis on auditor conservatism: US evidence
Abstract
Purpose
This paper aims to examine the effect that the recent financial crisis had on auditor conservatism in the form of increased going-concern opinions.
Design/methodology/approach
This study uses a sample of US’ distressed firms from 2005 to 2011 to test the change in going-concern opinions issued. This paper uses a logistic regression model to control for other predictors of going-concern opinions to determine when the financial crisis led to an increase in auditor conservatism.
Findings
The authors find that auditors became more conservative in the form of issuing higher levels of going-concern opinions even after controlling for other predictors of going-concern opinions. This increased conservatism was present in both Big 4 and non-Big 4 accounting firms. The increased conservatism quickly returned to normal levels when the financial crisis eased.
Originality/value
These findings add to the literature on the effects of environmental changes on audit opinions. Additionally, this study finds a difference in the timing of the reaction by large and small accounting firms, but, overall, it finds consistency in that both increased conservatism during the crisis and quickly returned to normal afterward.
Keywords
Citation
Beams, J. and Yan, Y.-C. (2015), "The effect of financial crisis on auditor conservatism: US evidence", Accounting Research Journal, Vol. 28 No. 2, pp. 160-171. https://doi.org/10.1108/ARJ-06-2013-0033
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited