Research Magazine 2020

Greater Reliance on Major Customers and Auditor Going-Concern Opinions Dan Dhaliwal, Paul N. Michas, Vic Naiker, and Divesh S. Sharma

Contemporary Accounting Research Vol. 37, No. 1 (Spring 2020), pp.160-188

Overview In this study, we predict and provide evidence that distressed firms that rely heavily on sales to major customers have a high incidence of receiving going- concern opinions (GCOs), and this effect is driven by the most distressed firms. We also find that variations in key characteristics of the relationship between a distressed firm and its primary customer are incrementally linked to GCOs; specifically, the GCQ effect of greater reliance on major customers is driven by firms that are relatively smaller than their largest major customer. Additionally, GCOs are more likely when firms are in a shorter relationship with their major customer and have a different auditor than the major customer. Overall, our study indicates that supply-chain relationships are relevant business risks associated with auditors’ going-concern assessments.

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