Several papers have examined the proportion of bankrupt companies which did not have a prior going-concern modified report (a type II reporting error) before and after Statement on Auditing Standards No. 59 became effective. This paper contributes to the debate by examining the subsequent viability status for companies that received a first-time going-concern modified audit report (type I reporting errors) before and after SAS No. 59. The results indicate that 13.6 (10.1) percent and 24.3 (20.2) percent of companies receiving a first-time going concern modified audit report in the post-SAS No. 59 (pre-SAS No. 59) period entered bankruptcy within one year and two years, respectively. After controlling for financial stress and company size, there were no significant differences in the proportion of companies with first-time going-concern modified audit reports filing for bankruptcy before and after SAS No. 59, in both the one-year and two-year subsequent time frames.

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Copyright © 1998 Stanversal Publishing. This article first appeared in Accounting Enquiries 8, no. 1 (August 1998): 1-34.

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