دانلود رایگان مقاله انگلیسی ترازنامه سیاست محافظه کاری و گزارش حسابرسی محافظه کار - وایلی 2017

Abstract:

Financial reports are prepared on a going-concern (GC) basis rather than a liquidation basis even when companies are highly distressed. This allows distressed companies to report book values of assets that greatly exceed their liquidation values, implying a lack of conservatism in the balance sheet. We argue that auditors issue goingconcern opinions in order to warn investors about this lack of balance sheet conservatism. This argument leads to two testable hypotheses. First, for companies that are at risk of bankruptcy, auditors are more likely to issue GC opinions when the book values of assets under the GC assumption are high relative to the expected liquidation values of assets (i.e., when the GC assumption causes the balance sheet to lack conservatism). Second, for companies that enter bankruptcy, the issuance of a prior GC opinion has predictive information content with respect to the wedge between the book values of assets and the future liquidation values of those same assets. Our results strongly support both hypotheses. The findings are important because they indicate that conservative audit reporting helps to compensate for a lack of conservatism in the balance sheet, which arises because the GC assumption permits the book values of assets to exceed their liquidation values.

5. CONCLUSION

We propose that GC opinions perform a second economic function beyond merely warning investors about the likelihood of bankruptcy. Specifically, the issuance of a GC opinion serves as a warning about a lack of conservatism in the balance sheet which exists because the financial statements are prepared on a GC basis rather than a liquidation basis. Using this argument, we develop two hypotheses. Our first hypothesis is that auditors are more likely to issue GC opinions when the book values of assets are high relative to their expected liquidation values. Our second hypothesis is that GC opinions are informative signals of the wedge between the book values of assets and their future liquidation values.

To test our first hypothesis, we measure the expected realization rate as of the date that the auditor issues the audit report. Consistent with the accounting literature on asset specificity, we find that £1.00 of book value produces £0.09 in liquidation value for intangibles, £0.88 for land and property, £0.45 for other fixed assets, £0.48 for inventory, and £0.57 for other non-cash current assets. We then apply these estimated realization rates to the companies in our sample, in order to estimate their expected realization rates at the dates that auditors issue their audit report.