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Greater Reliance on Major Customers and Auditor Going‐Concern Opinions
Author(s) -
Dhaliwal Dan,
Michas Paul N.,
Naiker Vic,
Sharma Divesh
Publication year - 2020
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12551
Subject(s) - business , audit , going concern , customer relationship management , accounting , marketing , auditor's report
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.