17. Audit Effectiveness Prior to Bankruptcy

Abstract

Management of the U.S. Economy depends heavily on corporations’ annual financial statements (10K’s) which ideally indicate how well a company is doing by many financial measures. This study analyzes data from audit reports of 129 large corporate companies that went bankrupt during 2012-2017. Our hypothesis in this study was that the audit performed by the certified accounting firm of the financial statements of each of these companies for the year prior to their bankruptcy should have contained signs of concern that would have indicated anything other than a healthy company. Our results show that out of the 129 bankrupt companies, 94 did not receive a going concern on their audit report. The repercussions of this lack of effectiveness are significant to the integrity and reliability of the audit report.

Keywords: Financial Statements, 10k, Accounting firm, US Economy, Bankruptcy, Audit