Going-concern audit opinions for bankrupt companies - impact of credit rating

Purpose - The purpose of this study is to examine whether credit ratings inform auditors' going-concern (GC) audit opinions for companies facing imminent bankruptcy.Design methodology approach - Using data from BankruptcyData.com the authors identify US publicly-held, financially-distressed companies that filed bankruptcy from January 1, 2000 through June 30, 2009. Logistic regression is applied by regressing audit opinion type on select financial, industry, and credit rating data.Findings - Results show that the likelihood of an auditor issuing a GC opinion is associated with the credit rating issued by Standard & Poor's (S&P) preceding the audit report date. In results supporting the idea that the auditor's opinion has informational value, the paper also finds that after issuance of a GC report, S&P's credit rating tends to be downgraded.Research limitations implications - While the findings indicate observable relationships between audit opinions and credit ratings, the models used in primary analysis cannot determine causality.Originality value - This study sheds some light on how credit ratings and audit opinions may be inter-related in distressed companies, an issue previously not investigated in the literature.