News from the Richard C. Adkerson School of Accountancy

Investigating Going Concern Reporting

Dr. Nathan Berglund enjoys connecting his research with the classroom. The Assistant Professor and CPA joined the ASAC faculty in 2015, teaching financial accounting at the sophomore and graduate levels. Last year, he began teaching audit to seniors and next spring will also teach it at the graduate level.

Berglund has become recognized for his research into going concern reporting. Most recently, his paper entitled “Auditor Size and Going Concern Reporting,” co-authored with Dan Eshleman and Peng Guo, was published in the May 2018 edition of Auditing: A Journal of Practice & Theory – a premier journal in the field published by the American Accounting Association.

This study examines the relationship between audit firm size and the auditor’s propensity to issue a modified going concern opinion for a distressed public company. The going concern modification warns investors that the auditor has substantial doubt about a company’s ability to remain viable. Berglund notes that businesses prefer their auditor to not modify the opinion and not send the negative signal to the market.

“Auditors’ going concern assessment and reporting decisions exercise their ability to maintain independence and withstand client pressure,” he comments. “This paper provides robust evidence that larger audit firms are more likely to modify the audit opinion for a financially-distressed company than are smaller audit firms. We attribute this difference in reporting behavior to different incentives that larger audit firms face compared to smaller audit firms.”

Berglund looks forward to discussing these incentives with his auditing students each semester.

“My chance to cover going concern reporting happens late in the semester, and it is my favorite lecture!” he states. “I lead an open discussion as to what the students see as incentives for an auditor to modify their opinion versus issue a clean opinion. I find that the students intuitively catch the incentives – auditors’ incentives to keep their clients happy versus incentives to reduce litigation and maintain a reputation for high audit quality. We talk about what high audit quality looks like and whether it is reasonable to expect the auditor to foresee bankruptcies like Lehman Brothers. This leads to great discussions, reveals differences in perspectives and opinions and overall enhances the students’ consideration of the audit environment.”

Such engaged teaching, informed by highly respected research, is why the Adkerson School of Accountancy and faculty like Nathan Berglund are making a notable impact on the accounting profession.

Berglund’s full article in Auditing may be read at this LINK.