Greater Reliance on Major Customers and Auditor Going-Concern Opinions
Department
School of Accountancy
Document Type
Article
Publication Date
3-1-2020
Abstract
© CAAA In this study, we predict and provide evidence that distressed firms that rely more heavily on major customers for sales have a comparatively higher incidence of receiving going-concern opinions (GCOs). Moreover, we find that the effect of increased reliance on major customers is driven by firms that are more distressed. We also theorize that variations in key characteristics of the relationship between a distressed firm and its largest major customer are incrementally linked to GCOs, and present evidence consistent with this. Specifically, we find that the effect of greater reliance on major customers is driven by firms that are relatively smaller than their largest major customer. Additionally, we find that greater reliance on major customers is positively (negatively) associated with GCOs when firms are in a shorter (longer) relationship with their major customer and when firms have a different auditor to (same auditor as) the largest major customer. Overall, our study indicates that supply chain relationships are relevant business risks associated with auditors' going-concern assessments.
Journal Title
Contemporary Accounting Research
Journal ISSN
08239150
Volume
37
Issue
1
First Page
160
Last Page
188
Digital Object Identifier (DOI)
10.1111/1911-3846.12551