Regulatory sanction risk and going-concern reporting practices: evidence for privately held firms

Figures & data

Table 1. Disciplinary sanctions issued by the Supervisory Board of Public Accountants, 2004–2013.

	2013	2012	2011	2010	2009	2008	2007	2006	2005	2004
Cases opened	121	123	123	119	128	141	142	113	150	164
SANCTIONS issued	46	51	39	49	54	55	65	58	59	46
Opened cases initiated by the SBPA	26	34	25	24	32	36	45	26	38	39
Opened cases initiated by quality control	21	17	16	15	16	25	30	19	21	21
Number of going-concern-related sanctions	12	10	3	6	5	0	1	0	0	0
Going-concern-related sanctions as % of total sanctions	26.1	19.6	7.7	10.2	9.3	0.0	1.5	0.0	0.0	0.0
Number of certified auditors	3,857	3,920	3,984	4,050	3,994	3,996	4,108	4,135	4,182	4,220
SANCTIONS as % of certified auditors	1.2	1.3	1.0	1.2	1.4	1.4	1.6	1.4	1.4	1.1

Table 2. Variable definitions.

Variable	Definition
GCD	An indicator variable taking the value one if the auditor issued a going-concern opinion.
SANCTIONS	Number of going-concern-related sanctions issued by SBPA.
SBPA2009	An indicator variable taking the value one in years 2009 to 2013 and zero otherwise.
BIG4	An indicator variable taking the value one if the firm is audited by PwC, EY, KPMG or Deloitte.
NEXT3	An indicator variable taking the value one if the firm is audited by Grant Thornton, BDO or Mazars.
PROBZ	The probability of bankruptcy based on Shumway’s (2001) estimates of Zmijewski’s model.
LOSS	An indicator variable taking the value one if the net income is negative.
BUSYSEASON	An indicator variable taking the value one if the balance sheet date is December 31.
DELAY	Number of days between the bankruptcy filing and the balance sheet date.
LNASSETS	The natural logarithm of total assets.
BANKDEBT	An indicator variable taking the value one if the firm has long- or short-term debt from financial institutions.
CRISIS	An indicator variable taking the value one if the balance sheet date is between 1^st July 2008 and 31^st December 2009.
SUBSIDIARY	An indicator variable taking the value one if the firm is a subsidiary.
PARENT	An indicator variable taking the value one if the firm is the parent company in a corporate group.
INDUSTRY VARIABLES	Industry variables measured at the two-digit level. The sample includes observations from thirteen industries.
STATUTORY	An indicator variable taking the value one if the firm meets the size criteria for a statutory audit.
BRUPT	An indicator variable taking the value one if the firm goes bankrupt.
UNCLEAN	An indicator variable taking the value one if the audit report departs from the standard wording.

Figure 1. Median assets of bankrupt and non-bankrupt firms in the sample and the population. Notes: The scale of the y-axis is assets in Million Swedish krona. The median assets for the population (Bankr pop, Non-bankr pop) is for all firms in Serrano database after the exclusion of publicly traded firms and firms with no audit report data. The median assets of bankrupt firms are from financial reports 3 to12 months before the firm went bankrupt.

Table 3. Size of firms in the sample in comparison with all firms in the database.

		Bankrupt firms				Non-bankrupt firms
		Assets (MSEK)		Revenues (MSEK)		Assets (MSEK)		Revenues (MSEK)
Year		Sample	All	Sample	All	Sample	All	Sample	All
All	Mean	7.448	10.030	9.366	10.821	12.092	70.099	11.747	34.212
	Median	1.079	1.100	2.587	2.456	1.087	1.845	1.555	1.302
	N	7,143	10,611	7,143	10,623	7,143	2,805,158	7,143	2,806,733

Notes: The table presents evidence on assets and revenues for the firms in our sample and for all firms in Serrano after the exclusion of publicly traded firms and firms with no audit report data. The ‘all’ column for bankrupt firms includes assets and revenues in financial reports with a balance-sheet date 3 to12 months before the firm went bankrupt.

Figure 2. Average proportion of bankrupt and non-bankrupt firms with a going concern opinion 2004–2013. Note: The scale of the y-axis is the fraction of firms with a going-concern opinion.

Table 4. Proportion of going-concern opinions by year.

Year	All firms		Big 4		Next3		Non-top 7
Bankrupt firms:
2004	9.54%	(27 / 283)	7.50%	(6 / 80)	9.09%	(4 / 44)	10.69%	(17 / 159)
2005	14.60%	(92 / 630)	17.05%	(30 / 176)	18.18%	(16 / 88)	12.57%	(46 / 366)
2006	14.73%	(99 / 672)	21.70%	(46 / 212)	20.48%	(17 / 83)	9.55%	(36 / 377)
2007	13.74%	(130 / 946)	20.06%	(67 / 334)	16.07%	(18 / 112)	9.00%	(45 / 500)
2008	19.46%	(239 / 1,228)	26.42%	(107 / 405)	27.33%	(47 / 172)	13.06%	(85 / 651)
2009	21.48%	(218 / 1,015)	27.81%	(94 / 338)	18.38%	(25 / 136)	18.30%	(99 / 541)
2010	20.78%	(203 / 977)	26.13%	(81 / 310)	28.00%	(35 / 125)	16.05%	(87 / 542)
2011	29.09%	(185 / 636)	40.63%	(78 / 192)	35.53%	(27 / 76)	21.74%	(80 / 368)
2012	34.58%	(175 / 506)	50.34%	(74 / 147)	35.48%	(22 / 62)	26.60%	(79 / 297)
2013	36.00%	(160 / 250)	42.86%	(27 / 63)	45.71%	(16 / 35)	30.92%	(47 / 152)
All years	20.41%	(1,458 / 7,143)	27.03%	(610 / 2,257)	24.33%	(227 / 933)	15.71%	(621 / 3,953)
Non-bankrupt firms:
2004	0.71%	(2 / 283)	0.00%	(0 / 117)	3.85%	(1 / 26)	0.71%	(1 / 139)
2005	3.65%	(23 / 630)	4.82%	(11 / 228)	4.40%	(4 / 91)	2.57%	(8 / 311)
2006	3.42%	(23 / 672)	4.24%	(10 / 236)	5.80%	(4 / 69)	2.45%	(9 / 367)
2007	3.81%	(36 / 946)	3.08%	(10 / 325)	5.88%	(7 / 119)	3.78%	(19 / 502)
2008	4.40%	(54 / 1,228)	5.79%	(26 / 449)	6.59%	(11 / 167)	2.78%	(17 / 612)
2009	4.73%	(48 / 1,015)	5.77%	(21 / 364)	5.65%	(7 / 124)	3.80%	(20 / 527)
2010	6.04%	(59 / 977)	8.83%	(28 / 317)	10.19%	(11 / 108)	3.62%	(20 / 552)
2011	5.66%	(36 / 636)	8.42%	(17 / 202)	7.06%	(6 / 79)	3.72%	(13 / 349)
2012	8.10%	(41 / 506)	11.76%	(18 / 153)	10.00%	(7 / 70)	5.65%	(16 / 283)
2013	6.80%	(17 / 250)	5.41%	(4 / 74)	7.14%	(2 / 28)	7.43%	(11 / 148)
All years	4.75%	(339 / 7,143)	5.88%	(145 / 2,465)	6.76%	(60 / 887)	3.53%	(134 / 3,791)

Table 5. Descriptive statistics.

	Bankrupt firms			Non-bankrupt firms
	GCD=0	GCD=1		GCD=0	GCD=1
	Mean	Mean	P-value	Mean	Mean	P-value
Panel A: Explanatory variables in the going-concern analyses in Table 6
SANCTIONS	2.819	3.994	<0.01	3.013	3.988	<0.01
SBPA2009	0.442	0.597	<0.01	0.468	0.593	<0.01
BIG4	0.290	0.418	<0.01	0.341	0.428	<0.01
NEXT3	0.124	0.156	<0.01	0.121	0.177	<0.01
PROBZ	0.465	0.632	<0.01	0.484	0.819	<0.01
LOSS	0.740	0.881	<0.01	0.777	0.944	<0.01
BUSYSEASON	0.549	0.519	0.04	0.606	0.552	0.05
DELAY (in days)	282.287	268.454	<0.01
LNASSETS	13.779	14.089	<0.01	13.870	13.215	<0.01
BANKDEBT	0.601	0.676	<0.01	0.430	0.525	<0.01
CRISIS	0.283	0.281	0.89	0.292	0.289	0.90
SUBSIDIARY	0.178	0.198	0.08	0.277	0.171	<0.01
PARENT	0.055	0.077	<0.01	0.079	0.091	0.42
	Bankrupt firms		Non-bankrupt firms
	Mean	Sd	Mean	Sd	P-value
Panel B: Explanatory variables in the bankruptcy tests in Table 9
GCD	0.204	0.403	0.047	0.213	<0.01
SBPA2009	0.474	0.499	0.474	0.499	1.00
BIG4	0.316	0.465	0.345	0.476	<0.01
NEXT3	0.131	0.337	0.124	0.330	<0.01
UNCLEAN	0.734	0.442	0.363	0.481	<0.01
PROBZ	0.499	0.358	0.500	0.358	0.92
LOSS	0.768	0.422	0.785	0.411	0.02
BUSYSEASON	0.542	0.498	0.603	0.489	<0.01
LNASSETS	13.842	1.781	13.839	1.998	0.92
BANKDEBT	0.617	0.486	0.434	0.496	<0.01
CRISIS	0.283	0.450	0.292	0.455	0.21
SUBSIDIARY	0.182	0.386	0.272	0.445	<0.01
PARENT	0.060	0.237	0.080	0.271	<0.01

Notes: Table reports mean values and standard deviations (Sd). The sample size is 7,143 bankrupt and 7,143 non-bankrupt firms. P-values are for t-tests for the continuous variables and for Pearson chi-square tests for the categorical variables. Variables are explained in Table 2.

Table 6. Correlations.

		(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)	(14)
Panel A: Bankrupt firms
(1)	GCD	1.000	0.118	0.125	0.112	0.038	0.192	0.135	−0.024	−0.094	0.065	0.062	−0.002	0.021	0.036
(2)	SANCTIONS	0.136	1.000	0.897	−0.007	−0.010	0.097	0.053	−0.042	−0.064	−0.008	−0.002	−0.129	0.040	0.017
(3)	SBPA2009	0.125	0.848	1.000	−0.012	−0.007	0.100	0.067	−0.056	−0.067	−0.012	0.000	0.036	0.043	0.019
(4)	BIG4	0.112	−0.019	−0.012	1.000	−0.263	0.018	0.040	0.062	0.022	0.104	0.071	0.020	0.104	0.033
(5)	NEXT3	0.038	−0.005	−0.007	−0.263	1.000	−0.006	0.002	0.009	0.011	0.051	0.000	0.011	0.032	0.014
(6)	PROBZ	0.187	0.109	0.101	0.011	−0.006	1.000	0.540	−0.002	−0.091	−0.353	0.001	−0.015	−0.069	−0.019
(7)	LOSS	0.135	0.064	0.067	0.040	0.002	0.483	1.000	0.009	−0.089	−0.086	0.069	0.027	0.005	0.005
(8)	BUSYSEASON	−0.024	−0.055	−0.056	0.062	0.009	−0.004	0.009	1.000	0.036	0.077	−0.043	0.013	0.099	0.036
(9)	DELAY (in days)	−0.096	−0.086	−0.072	0.020	0.015	−0.088	−0.087	0.030	1.000	0.006	−0.056	−0.057	−0.011	0.012
(10)	LNASSETS	0.070	−0.027	−0.020	0.108	0.050	−0.395	−0.071	0.077	0.021	1.000	0.349	0.021	0.281	0.140
(11)	BANKDEBT	0.062	0.000	0.000	0.071	0.000	−0.025	0.069	−0.043	−0.046	0.347	1.000	0.003	−0.015	0.040
(12)	CRISIS	−0.002	−0.098	0.036	0.020	0.011	−0.015	0.027	0.013	−0.060	0.023	0.003	1.000	0.036	−0.015
(13)	SUBSIDIARY	0.021	0.037	0.043	0.104	0.032	−0.070	0.005	0.099	−0.010	0.280	−0.015	0.036	1.000	−0.119
(14)	PARENT	0.036	0.022	0.019	0.033	0.014	−0.026	0.005	0.036	0.016	0.128	0.040	−0.015	−0.119	1.000
		(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)
Panel B: Non-bankrupt firms
(1)	GCD	1.000	0.057	0.053	0.039	0.036	0.199	0.086	−0.024	−0.073	0.041	−0.002	−0.051	0.010
(2)	SANCTIONS	0.059	1.000	0.897	−0.040	−0.006	0.098	0.056	−0.005	−0.007	−0.037	−0.150	0.034	0.004
(3)	SBPA2009	0.053	0.848	1.000	−0.034	−0.005	0.100	0.066	−0.003	−0.011	−0.038	0.016	0.034	0.005
(4)	BIG4	0.039	−0.039	−0.034	1.000	−0.273	−0.005	0.019	0.109	0.167	−0.007	0.025	0.207	−0.006
(5)	NEXT3	0.036	−0.004	−0.005	−0.273	1.000	0.022	0.009	−0.001	0.018	−0.019	0.014	0.010	0.030
(6)	PROBZ	0.199	0.109	0.101	−0.013	0.026	1.000	0.547	0.056	−0.353	−0.058	−0.018	0.066	−0.038
(7)	LOSS	0.086	0.067	0.066	0.019	0.009	0.487	1.000	0.044	−0.170	−0.044	0.024	0.080	−0.005
(8)	BUSYSEASON	−0.024	0.003	−0.003	0.109	−0.001	0.049	0.044	1.000	0.107	−0.032	0.067	0.134	−0.001
(9)	LNASSETS	−0.070	−0.030	−0.023	0.172	0.019	−0.398	−0.170	0.105	1.000	0.252	0.033	0.304	0.132
(10)	BANKDEBT	0.041	−0.038	−0.038	−0.007	−0.019	−0.083	−0.044	−0.032	0.237	1.000	0.009	−0.129	0.029
(11)	CRISIS	−0.002	−0.116	0.016	0.025	0.014	−0.020	0.024	0.067	0.039	0.009	1.000	−0.007	0.014
(12)	SUBSIDIARY	−0.051	0.037	0.034	0.207	0.010	0.057	0.080	0.134	0.304	−0.129	−0.007	1.000	−0.180
(13)	PARENT	0.010	0.012	0.005	−0.006	0.030	−0.047	−0.005	−0.001	0.115	0.029	0.014	−0.180	1.000

Notes: The table reports Spearman rank correlations above the diagonal and Pearson correlations below the diagonal. Correlations that are significant at 0.01 are in bold. Variables are explained in Table 2.

Table 7. Tests of hypotheses 1 and 2 on the entire samples.

Dependent variable = GCD	Logit				OLS
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Panel A: Bankrupt firms
SANCTIONS	0.0782*** (9.10)	0.0803*** (6.58)			0.0126*** (8.79)	0.0106*** (6.00)
SBPA2009			0.541*** (8.59)	0.574*** (6.12)			0.0802*** (8.59)	0.0674*** (5.86)
BIG4	0.668*** (9.73)	0.647*** (6.73)	0.666*** (9.72)	0.663*** (6.42)	0.101*** (9.46)	0.0803*** (5.95)	0.100*** (9.41)	0.0799*** (5.93)
NEXT3	0.528*** (5.59)	0.633*** (4.91)	0.533*** (5.66)	0.666*** (4.89)	0.0775*** (5.26)	0.0796*** (4.27)	0.0778*** (5.28)	0.0811*** (4.34)
BIG4*SANCTIONS		0.00671 (0.36)				0.00679** (2.06)
NEXT3*SANCTIONS		−0.0297 (−1.17)				−0.000763 (−0.17)
BIG4*SBPA2009				0.0109 (0.08)				0.0434** (2.04)
NEXT3*SBPA2009				−0.245 (−1.32)				−0.00756 (−0.26)
PROBZ	1.659*** (14.41)	1.660*** (14.41)	1.669*** (14.51)	1.670*** (14.51)	0.246*** (14.93)	0.246*** (14.93)	0.248*** (15.07)	0.248*** (15.09)
LOSS	0.252** (2.48)	0.252** (2.49)	0.246** (2.42)	0.245** (2.42)	0.0203* (1.83)	0.0205* (1.85)	0.0200* (1.81)	0.0200* (1.80)
BUSYSEASON	−0.198*** (−3.12)	−0.198*** (−3.12)	−0.198*** (−3.12)	−0.197*** (−3.11)	−0.0275*** (−2.96)	−0.0276*** (−2.97)	−0.0276*** (−2.97)	−0.0276*** (−2.97)
DELAY (in days)	−0.00326*** (−6.17)	−0.00327*** (−6.19)	−0.00340*** (−6.44)	−0.00340*** (−6.44)	−0.000489*** (−5.91)	−0.000494*** (−5.97)	−0.000509*** (−6.14)	−0.000514*** (−6.20)
LNASSETS	0.243*** (10.41)	0.243*** (10.41)	0.243*** (10.44)	0.243*** (10.43)	0.0357*** (10.72)	0.0357*** (10.71)	0.0357*** (10.73)	0.0358*** (10.74)
BANKDEBT	0.0503 (0.70)	0.0507 (0.71)	0.0510 (0.71)	0.0510 (0.71)	−0.000622 (−0.06)	−0.000304 (−0.03)	−0.000559 (−0.05)	−0.000251 (−0.02)
CRISIS	0.0276 (0.40)	0.0269 (0.39)	−0.0689 (−0.99)	−0.0692 (−0.99)	0.00212 (0.21)	0.00184 (0.18)	−0.0108 (−1.05)	−0.0111 (−1.08)
SUBSIDIARY	−0.148* (−1.68)	−0.147* (−1.68)	−0.147* (−1.67)	−0.145* (−1.65)	−0.0216* (−1.66)	−0.0216* (−1.66)	−0.0211 (−1.61)	−0.0210 (−1.61)
PARENT	0.0870 (0.67)	0.0848 (0.65)	0.0893 (0.68)	0.0900 (0.69)	0.0165 (0.76)	0.0160 (0.74)	0.0172 (0.80)	0.0170 (0.79)
INDUSTRY	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
CONSTANT	−4.902*** (−10.98)	−4.916*** (−10.93)	−4.847*** (−10.91)	−4.875*** (−10.86)	−0.272*** (−4.09)	−0.265*** (−3.97)	−0.260*** (−3.92)	−0.253*** (−3.80)
Pseudo R-squared / R-squared	0.0985	0.0988	0.0975	0.0978	0.0948	0.0955	0.0930	0.0937
N	7,143	7,143	7,143	7,143	7,143	7,143	7,143	7,143
Marginal effects of SANCTIONS or SBPA2009 for:
NON-TOP 7		0.010***		0.072***		0.011***		0.067***
BIG4		0.015***		0.103***		0.017***		0.111***
NEXT3		0.008**		0.055**		0.010**		0.060**
BIG4 vs. NON-TOP 7		0.005*		0.031		0.007**		0.043**
NEXT3 vs NON-TOP7		−0.002		−0.017		−0.001		−0.008

Table 7. Continued.

Dependent variable = GCD	Logit				OLS
	(9)	(10)	(11)	(12)	(13)	(14)	(15)	(16)
Panel B: Non-bankrupt firms
SANCTIONS	0.0588*** (3.88)	0.0547** (2.33)			0.00283*** (3.70)	0.00179* (1.87)
SBPA2009			0.388*** (3.26)	0.286 (1.55)			0.0171*** (3.45)	0.00743 (1.25)
BIG4	0.825*** (6.15)	0.763*** (4.08)	0.817*** (6.09)	0.653*** (3.21)	0.0339*** (5.72)	0.0255*** (3.68)	0.0336*** (5.68)	0.0217*** (3.17)
NEXT3	0.762*** (4.53)	0.818*** (3.46)	0.752*** (4.46)	0.806*** (3.19)	0.0335*** (3.86)	0.0303*** (2.80)	0.0335*** (3.85)	0.0301*** (2.72)
BIG4*SANCTIONS		0.0166 (0.50)				0.00282 (1.60)
NEXT3*SANCTIONS		−0.0156 (−0.35)				0.00102 (0.39)
BIG4*SBPA2009				0.284 (1.09)				0.0258** (2.300)
NEXT3*SBPA2009				−0.104 (−0.31)				0.00681 (0.39)
PROBZ	3.249*** (13.62)	3.248*** (13.62)	3.253*** (13.64)	3.251*** (13.66)	0.127*** (13.49)	0.127*** (13.50)	0.127*** (13.53)	0.127*** (13.54)
LOSS	0.335 (1.26)	0.332 (1.25)	0.337 (1.27)	0.331 (1.25)	−0.00556 (−1.17)	−0.00566 (−1.19)	−0.00542 (−1.14)	−0.00564 (−1.19)
BUSYSEASON	−0.281** (−2.33)	−0.284** (−2.36)	−0.271** (−2.25)	−0.278** (−2.31)	−0.0134** (−2.56)	−0.0135** (−2.58)	−0.0131** (−2.51)	−0.0133** (−2.54)
LNASSETS	0.0665* (1.82)	0.0663* (1.81)	0.0653* (1.78)	0.0650* (1.78)	0.00160 (0.91)	0.00161 (0.92)	0.00160 (0.92)	0.00157 (0.90)
BANKDEBT	0.496*** (4.01)	0.495*** (4.01)	0.495*** (4.00)	0.492*** (3.98)	0.0188*** (3.47)	0.0189*** (3.49)	0.0188*** (3.47)	0.0188*** (3.48)
CRISIS	0.0976 (0.75)	0.0967 (0.74)	0.0236 (0.18)	0.0205 (0.16)	0.00326 (0.60)	0.00317 (0.58)	0.000443 (0.08)	0.000273 (0.05)
SUBSIDIARY	−0.832*** (−4.85)	−0.835*** (−4.87)	−0.821*** (−4.79)	−0.824*** (−4.81)	−0.0335*** (−5.41)	−0.0337*** (−5.45)	−0.0333*** (−5.37)	−0.0335*** (−5.41)
PARENT	0.125 (0.58)	0.129 (0.60)	0.146 (0.68)	0.147 (0.68)	0.00275 (0.27)	0.00261 (0.26)	0.00317 (0.32)	0.00321 (0.32)
INDUSTRY	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
CONSTANT	−8.157*** (−8.74)	−8.128*** (−8.66)	−8.111*** (−8.71)	−8.031*** (−8.56)	−0.0771*** (−2.95)	−0.0748*** (−2.85)	−0.0752*** (−2.87)	−0.0707*** (−2.70)
N	7,143	7,143	7,143	7,143	7,143	7,143	7,143	7,143
Pseudo R-squared / R-squared	0.159	0.159	0.158	0.159	0.057	0.057	0.056	0.057
Average marginal effects of SANCTIONS or SBPA2009 for:
NON-TOP 7		0.002**		0.009		0.002*		0.007
BIG4		0.004***		0.032***		0.005***		0.033***
NEXT3		0.002		0.010		0.003		0.014
BIG4 vs. NON-TOP 7		0.002		0.024**		0.003		0.026**
NEXT3 vs NON-TOP7		0.001		0.001		0.001		0.007

Notes: *. **. *** denote two-tailed statistical significance at the 0.10. 0.05. and 0.01 levels respectively using two-tailed tests. Columns 1 to 4 report logit regressions and columns 5 to 8 report LPM results (estimated with OLS). The z-values (t-values) in parentheses for the logit (OLS) regressions are based on robust standard errors. The bottom part of the table reports average marginal effects (marginal effects) for the logit (OLS) regressions. The variables are defined in Table 2.

Table 8. Regressions examining the impact of sanction risk in firms with and without the statutory auditor requirement.

Dependent variable = GCD	Logit				OLS
	Bankrupt		Non-bankrupt		Bankrupt		Non-bankrupt
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
STATUTORY	−0.019 (−0.18)	−0.00632 (−0.06)	0.286 (1.32)	0.353 (1.59)	−0.0129 (−0.87)	−0.00986 (−0.66)	0.00709 (0.92)	0.0101 (1.32)
SANCTIONS	0.0805*** (6.53)		0.0532** (2.53)		0.0125*** (5.71)		0.00253** (2.20)
SBPA2009		0.840*** (7.64)		0.494** (2.56)		0.123*** (6.89)		0.0225** (2.46)
STATUTORY*SANCTIONS	0.0387** (2.14)		0.0234 (0.68)		0.0109*** (3.10)		0.00222 (1.04)
STATUTORY*SBPA2009		0.253 (1.61)		0.0414 (0.13)		0.0728** (2.57)		0.00702 (0.44)
BIG4	0.760*** (9.08)	0.777*** (9.26)	0.756*** (4.54)	0.747*** (4.48)	0.113*** (8.86)	0.114*** (8.98)	0.0297*** (4.28)	0.0294*** (4.23)
NEXT3	0.626*** (5.57)	0.649*** (5.80)	0.698*** (3.44)	0.676*** (3.32)	0.0902*** (5.19)	0.0921*** (5.32)	0.0300*** (2.97)	0.0297*** (2.94)
PROBZ	1.396*** (10.07)	1.379*** (9.92)	3.022*** (10.39)	3.019*** (10.36)	0.202*** (10.16)	0.199*** (10.00)	0.114*** (10.29)	0.114*** (10.27)
LOSS	0.345*** (2.86)	0.334*** (2.78)	0.419 (1.30)	0.419 (1.30)	0.0317** (2.42)	0.0305** (2.34)	−0.00198 (−0.35)	−0.00174 (−0.31)
BUSYSEASON	−0.228*** (−2.98)	−0.216*** (−2.82)	−0.292* (−1.95)	−0.286* (−1.92)	−0.0309*** (−2.82)	−0.0294*** (−2.68)	−0.0130** (−2.12)	−0.0128** (−2.09)
DELAY	−0.00340*** (−5.30)	−0.00344*** (−5.35)			−0.000506*** (−5.09)	−0.000512*** (−5.15)
LNASSETS	0.211*** (6.40)	0.211*** (6.39)	0.0186 (0.38)	0.0159 (0.33)	0.0309*** (6.69)	0.0309*** (6.69)	−0.000126 (−0.06)	−0.000192 (−0.08)
BANKDEBT	0.109 (1.25)	0.106 (1.21)	0.331** (2.14)	0.332** (2.15)	0.00843 (0.69)	0.00769 (0.63)	0.0108* (1.73)	0.0109* (1.74)
CRISIS	0.217** (2.18)	0.297*** (2.91)	0.322* (1.68)	0.332* (1.69)	0.0314** (2.24)	0.0375*** (2.69)	0.0131* (1.80)	0.0128* (1.77)
SUBSIDIARY	−0.209* (−1.93)	−0.216** (−2.00)	−0.880*** (−4.11)	−0.864*** (−4.04)	−0.0309** (−1.97)	−0.0318** (−2.03)	−0.0337*** (−4.63)	−0.0335*** (−4.60)
PARENT	−0.0629 (−0.38)	−0.0686 (−0.42)	−0.0137 (−0.05)	0.00786 (0.03)	−0.00832 (−0.33)	−0.00957 (−0.38)	−0.00183 (−0.16)	−0.00182 (−0.16)
INDUSTRY	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
CONSTANT	−4.017*** (−6.90)	−4.068*** (−6.97)	−6.905*** (−7.85)	−6.907*** (−7.92)	−0.127 (−1.41)	−0.125 (−1.40)	−0.0425 (−1.32)	−0.0423 (−1.32)
N	5,032	5,032	4,965	4,965	5,032	5,032	4,965	4,965
Pseudo R-squared / R-squared	0.107	0.112	0.155	0.153	0.106	0.108	0.053	0.053
Average marginal effect of SANCTIONS or SBPA2009 for:
STATUTORY=0	0.011***	0.131***	0.002**	0.019**	0.013***	0.123***	0.003**	0.022**
STATUTORY=1	0.017***	0.179***	0.004***	0.028*	0.023***	0.196***	0.005***	0.029**
STATUTORY=1 vs. STATUTORY=0	0.006**	0.048*	0.002	0.009	0.011***	0.073**	0.002	0.007

Notes: *. **. *** denote two-tailed statistical significance at the 0.10. 0.05. and 0.01 levels respectively using two-tailed tests. Columns 1 to 4 report logit regressions and columns 5 to 8 report LPM results (estimated with OLS). The z-values (t-values) in parentheses for the logit (OLS) regressions are based on robust standard errors. The bottom part of the table reports average marginal effects (marginal effects) for the logit (OLS) regressions. The variables are defined in Table 2.

Table 9. Tests of the information contents of going-concern opinions.

	Logit				OLS
Dependent variable = BRUPT	All firms	Big 4	Next3	Non-Top 7	All firms	Big 4	Next3	Non-Top 7
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Panel A: Logit and OLS regressions relating going-concern opinions to bankruptcy
GCD	0.867*** (8.37)	0.978*** (5.86)	0.759*** (3.03)	0.832*** (5.20)	0.159*** (9.79)	0.178*** (6.84)	0.140*** (3.38)	0.152*** (6.16)
SBPA2009	−0.189*** (−4.73)	−0.0747 (−1.03)	−0.211* (−1.78)	−0.239*** (−4.52)	−0.0391*** (−4.76)	−0.0139 (−0.98)	−0.0423* (−1.81)	−0.0510*** (−4.59)
GCD*SBPA2009	0.286** (2.18)	0.103 (0.49)	0.404 (1.24)	0.377* (1.85)	0.0575*** (2.85)	0.0247 (0.77)	0.0785 (1.50)	0.0716** (2.36)
BIG4	−0.0762* (−1.77)				−0.0141* (−1.65)
NEXT3	0.00406 (0.07)				0.000989 (0.08)
UNCLEAN	1.709*** (37.44)	1.659*** (20.45)	1.830*** (13.88)	1.724*** (28.08)	0.375*** (42.59)	0.359*** (22.37)	0.382*** (15.92)	0.382*** (32.47)
PROBZ	−1.024*** (−14.41)	−0.994*** (−7.84)	−1.500*** (−7.27)	−0.934*** (−9.73)	−0.196*** (−14.66)	−0.179*** (−7.87)	−0.278*** (−7.61)	−0.184*** (−9.89)
LOSS	−0.105** (−2.04)	−0.0132 (−0.14)	0.0553 (0.37)	−0.169** (−2.47)	−0.0224** (−2.12)	−0.00458 (−0.24)	0.00815 (0.28)	−0.0351** (−2.47)
BUSYSEASON	−0.0971** (−2.51)	−0.166** (−2.31)	−0.00883 (−0.08)	−0.0710 (−1.39)	−0.0199** (−2.55)	−0.0332** (−2.39)	−0.000242 (−0.01)	−0.0149 (−1.42)
LNASSETS	0.0183 (1.49)	−0.0107 (−0.52)	0.0079 (0.22)	0.0424** (2.41)	0.00477* (1.90)	−0.00101 (−0.26)	0.00262 (0.36)	0.00995*** (2.69)
BANKDEBT	0.590*** (14.56)	0.733*** (10.12)	0.661*** (5.68)	0.481*** (8.71)	0.120*** (14.44)	0.144*** (10.02)	0.132*** (5.71)	0.0995*** (8.65)
CRISIS	0.0384 (0.91)	0.0533 (0.72)	−0.014 (−0.11)	0.0333 (0.59)	0.00767 (0.91)	0.00959 (0.68)	−0.0024 (−0.10)	0.00726 (0.62)
SUBSIDIARY	−0.207*** (−4.14)	−0.312*** (−3.73)	−0.144 (−1.03)	−0.106 (−1.49)	−0.0405*** (−4.12)	−0.0591*** (−3.72)	−0.0258 (−0.94)	−0.0214 (−1.49)
PARENT	−0.448*** (−6.11)	−0.277** (−2.22)	−0.559*** (−2.81)	−0.549*** (−5.33)	−0.0896*** (−6.20)	−0.0553** (−2.27)	−0.111*** (−2.89)	−0.110*** (−5.40)
INDUSTRY	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
CONSTANT	−0.820*** (−3.90)	−0.939*** (−2.69)	−1.244* (−1.83)	−0.727** (−2.42)	0.302*** (7.09)	0.283*** (4.35)	0.222* (1.70)	0.316*** (5.05)
N	14,286	4,722	1,820	7,744	14,286	4,722	1,820	7,744
Pseudo R-squared / R-squared	0.156	0.189	0.183	0.138	0.200	0.239	0.230	0.178
Marginal effect of GCD for:
SBPA2009 = 0	0.175***	0.194***	0.148***	0.169***	0.159***	0.178***	0.140***	0.152***
SBPA2009 = 1	0.232***	0.215***	0.225***	0.245***	0.217***	0.203***	0.218***	0.224***
SBPA2009 = 1 vs. SBPA2009 = 0	0.057**	0.020	0.077	0.076**	0.058***	0.025	0.078	0.072**
Classification accuracy (0.5 as the cut-off point)
Bankrupt firms (sensitivity)	65.48%	65.40%	69.99%	66.86%	66.95%	66.51%	67.49%	67.83%
Non-bankrupt firms (specificity)	72.24%	76.00%	71.44%	69.16%	71.33%	71.36%	69.59%	70.14%
Correctly classified	68.86%	70.94%	70.70%	67.98%	69.14%	68.93%	68.54%	68.98%
	All firms	Big 4	Next 3	Non−Top 7
Panel B: Going-concern opinions, sanction risk and the area under the ROC curve
Lower sanction risk period (SBPA=0)
Model (3) without GCD	0.722	0.742	0.764	0.708
Model (3) with GCD	0.729	0.753	0.769	0.713
Chi-square	26.330***	17.070***	2.080	8.620***
N	7,518	2,562	971	3,985
Higher sanction risk period (SBPA=1)
Model (3) without GCD	0.779	0.815	0.783	0.764
Model (3) with GCD	0.790	0.824	0.799	0.775
Chi-square	38.820***	9.360***	6.940***	20.740***
N	6,768	2,160	849	3,759
Comparison of lower and higher sanction risk periods
Model (3) with GCD (SBPA=0)	0.729	0.753	0.769	0.713
Model (3) with GCD (SBPA=1)	0.790	0.823	0.799	0.775
Chi-square	59.52***	29.68***	1.97	31.69***
N	7,518 / 6,768	2,562 / 2,160	971 / 849	3,985 / 3,759

Notes: *. **. *** denote two-tailed statistical significance at the 0.10. 0.05. and 0.01 levels respectively using two-tailed tests. Columns 1 to 4 in Panel A report logit regressions and columns 5 to 8 report LPM results (estimated with OLS). The z-values (t-values) in parentheses for the logit (OLS) regressions are based on robust standard errors. The bottom part of Panel A reports average marginal effects (marginal effects) for the logit (OLS) regressions. Panel B reports the area under the ROC curve. The chi-square tests are for the null hypotheses that the area for model (3) without GCD is equal to the area for model (3) with GCD using the methods presented by Cleves (2002). The variables are defined in Table 2.

Table

Decision date	Dnr	Period inspected	Case description (summary and translation)
2013: 12 Disciplinary sanctions (1 withdrawal)
2013-12-13	2012-712	Fiscal years 2010–2011	The auditor has not collected sufficient audit evidence to evaluate the going-concern assumption. Oral promises of future capital injections and sales of assets are not sufficient. Warning
2013-10-31	2012-833	Fiscal years 2009–2010	The auditor did not inform about going-concern uncertainty. Warning
2013-10-31	2012-660	Fiscal years 2010–2011	The auditor has failed to sufficiently consider the going-concern assumption and to take the appropriate actions. Warning
2013-06-13	2011-1357	Fiscal year 2010	Audit documentation does not include any evaluation of the ability to continue as a going concern. No written audit evidence was gathered. The audit report should have indicated uncertainty regarding going concern. Reprimand
2013-06-13	2011-1623	Fiscal years 2007/2008, 2009	When the audit report was issued, the company’s going-concern status was uncertain. Promises given by the board about the future do not change this fact. Warning
2013-06-13	2012-1389	Fiscal years 2010–2011	The audit documentation does not include any reflection of the going-concern assumption. The ownership structure does not suggest that the going-concern assumption should not be considered. Reporting on the loss of own equity is not sufficient. Withdrawal of license
2013-06-13	2011-1544	Fiscal years 2007–2008	The auditor should have further tested the company’s ability to continue as a going concern. And the existence of potential hidden values in ongoing projects does not suggest that the going-concern paragraph is unnecessary. Warning
2013-06-13	2011-1752	Fiscal year 2010/2011	The company reported a profit for 2009/10, but only owing to debt reduction, and was thereafter unprofitable. The auditor should have reported going-concern uncertainty. Warning
2013-05-03	2011-1632	Fiscal years 2008-2009	The audit documentation does not include any information about why creditors would not claim their money. The auditor should have reported going-concern uncertainty. Warning
2013-05-03	2011-1633	Fiscal year 2007	The audit documentation does not include any information about why creditors would not claim their money. The auditor should have reported going-concern uncertainty. Warning
2013-03-21	2012-1387	Fiscal years 2010–2011	Reporting on the responsibility of the board to liquidate the firm is insufficient. The auditor should have reported going-concern uncertainty. Warning
2013-03-21	2011-1017	Fiscal years 2008/2009, 2010	No audit evidence to ensure that the owner would put in more money if needed was presented. This claim cannot, therefore, be considered. The auditor should have reported going-concern uncertainty. Warning
2012: 10 Disciplinary sanctions (4 withdrawals)
2012-12-13	2011-1708	Fiscal year 2010	The auditor has not presented any convincing reasons as to why a going-concern paragraph has not been included. Warning
2012-11-01	2010-1629	Fiscal year 2009	The oral promise that the owner would put in more money does not change that a going-concern paragraph should be included. Withdrawal of licence
2012-06-14	2012-579	Fiscal years 2009–2010	Capital injections were too small to restore own equity, and given the significant losses, the auditor should have included a going-concern paragraph. Withdrawal of licence
2012-06-14	2010-1583	Fiscal years 2005–2010	Audit documentation does not include audit evidence on the going-concern assumption. Claims that the owner believes in the business idea and is willing to put in more money cannot be considered a reason for not reporting going-concern uncertainty. Warning
2012-06-14	2011-821	Fiscal years 2007/2008, 2009–2010	The auditor should have reported going-concern issues regardless of whether s/he believed that continuing operations were possibly due to ‘two new owners.’ Warning
2012-05-03	2011-492	Fiscal year 2008/2009	That the auditor reported the duty to liquidate and the responsibility of the board to provide a balance sheet for liquidation purposes is not relevant to the going-concern issue. Warning
2012-05-03	2011-1638	Fiscal year 2010	Audit documentation does not include a going-concern evaluation. It is unclear whether the auditor considered the possibility of the parent company offering support through additional funding. Warning
2012-05-03	2011-492	Fiscal years 2009–2010	The auditor has not informed about going-concern uncertainty. Warning
2012-03-22	2011-1704	Fiscal year 2009	The auditor has not undertaken sufficient measures with regard to the going-concern assumption. Withdrawal of licence
2012-02-09	2011-103	Fiscal years 2005–2009	Audit documentation does not include any proof that a new owner is willing to invest money. The SBPA concludes that the auditor needs a written guarantee to support this claim. The auditor should have reported going-concern uncertainty. Withdrawal of licence
2011: 3 Disciplinary sanctions (0 withdrawals)
2011-12-15	2010-842	Fiscal year 2004	Audit documentation does not include information on going-concern considerations. Warning
2011-09-22	2011-693	Fiscal years 2008-2009	Audit documentation on going-concern consideration is insufficient. The claim that the owner might be willing to put in money is irrelevant if no written agreement is signed. Warning
2011-09-22	2010-862	Fiscal years 2005–2006, 2008/2009	Previous capital injections by the owner are relevant for the going-concern issue, but they are not sufficient as audit evidence unless there is a written agreement. Warning
2010: 6 Disciplinary sanctions (2 withdrawals)
2010-12-10	2009-890	Fiscal year 2007	Audit documentation or auditors’ comments to the SBPA do not support that the auditor investigated the opportunity for the owner to put in more money. The auditor had insufficient evidence to evaluate the going-concern assumption. Warning
2010-06-10	2010-403	Fiscal years 2007-2008	Audit documentation does not include information about any going-concern evaluation. There is no written documentation of the manager’s willingness to give up financial claims. Warning
2010-04-29	2008-1458	Fiscal years 2006-2007	The auditor has not sufficiently considered the going-concern assumption. Withdrawal of licence
2010-04-29	2009-1451	Fiscal years 2007/2008	Information about liquidation in the audit report is not sufficient, given that the auditor was aware that the reconstruction of the company had failed. The auditor should have reported going-concern uncertainty. Warning
2010-02-04	2008-587	Fiscal years 2003–2005	The auditor should have reported going-concern uncertainty, although the director’s report indicated a loss of share capital and personal responsibility for the board of directors. Warning
2010-02-04	2008-1468	Fiscal years 2006–2007	Audit documentation does not include information about any going-concern assessment, and the information presented by the auditor does not indicate that s/he made sufficient evaluations. Withdrawal of licence
2009: 5 Disciplinary sanctions (2 withdrawals)
2009-10-22	2009-660	Fiscal years 2006–2007	Audit documentation does not support sufficient evaluation of the going-concern assumption. The auditor’s claim that s/he was given secret information about future events has not been verified or recorded. No available documentation suggests that the going-concern assumption is valid for this company. Warning
2009-09-18	2008-1489	Fiscal year 2007	Audit documentation does not indicate an evaluation of the going-concern assumption. That the auditor has reported the lack of a balance sheet for liquidation purposes is not sufficient. Warning
2009-06-11	2009-313	Fiscal years 2005–2007	The auditor has not reflected on the going-concern assumption. Withdrawal of licence
2009-03-19	2007-730	Fiscal year 2006	Going-concern reporting was the main issue addressed. The SBPA made it clear that a going-concern paragraph should have been included, even though management had reported the loss of share capital, a forthcoming sale or rental of operations, and a possible capital injection. Reprimand
2009-02-05	2007-1571	Fiscal years 2003/2004, 2004/2005	The auditor should have undertaken further audit procedures to evaluate the going-concern assumption. Oral statements and prior experience of the owner’s willingness to support the company are not sufficient evidence for evaluating the going- concern assumption. Withdrawal of licence
2007: 1 Disciplinary Sanction (0 withdrawals)
2007-12-06	2006-1081	Fiscal years 2004–2005	The case is partly related to going concern. Audit documentation does not support any evaluation of whether this type of business is run in accordance with current regulations. The outcome of such evaluation has direct implications for the company’s capacity to continue as a going concern. Warning

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