Audit Evidence Supporting the Missing Going Concern Opinions: Bankrupt California Public School Districts

Authors

  • S. Joseph Durden
  • John Sennetti Nova Southeastern University

Keywords:

Auditing, Going-concern, Bankruptcy,

Abstract

Because of asymmetric payoffs to the auditor, bankrupt local governmental units are unlikely to receive going concern audit opinions (GCOs). To increase this likelihood¸ we propose a framework to increase the evidence to support this opinion. We then apply this to 400 California School District reports, 54 of which were used to declare bankruptcy by 2008. Typically, because of the impending bankruptcy, otherwise reliable State financial information becomes unreliable. We address this and then recommend a GCO in 2008 for thirteen of nineteen districts which eventually went bankrupt. We confirm as available: 1) the missing evidence and provide, and 2) an improved information model demanded by auditing research and practice.

Author Biographies

S. Joseph Durden

S. Joseph Durden is a CPA, PC. He has given going concern audit opinions to some governmental units. His
publications include Issues in Accounting Education of the American Accounting Association.

John Sennetti, Nova Southeastern University

John Sennetti is a professor of graduate statistics and accounting at Nova Southeastern University. He received his Ph.D. from Virginia Tech. He supports the research of his graduate students, and has also published in Auditing: A Journal of Practice and Theory, Journal of Finance, Journal of Business Ethics, Advances in Accounting Behavioral Research, and other.

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Published

2012-12-05

Issue

Vol. 3 No. 1 (2012)

Section

ABR Journal Articles

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