The effects of problem severity and recovery strategy on managers’ going concern judgments and decisions

•The level of financial distress and type of recovery plan affect managers’ likelihood of disclosing a substantial doubt about their company’s ability to continue as a going concern.•Managers are most likely to provide a “substantial doubt” going concern disclosure when financial distress is very high and the recovery plan focuses on debt and equity.•Contrary to findings with other stakeholders, managers clearly indicate a preference for expense reduction as a plan for dealing with going concern problems.•Managers indicate that their going concern disclosure decision is most affected by decreasing profitability and revenue. Accounting standards now require management (as preparers of the financial statements) to assess and disclose going concern problems to stakeholders. However, important questions exist about managers’ ability and willingness to provide credible going concern assessments given their role as financial statement preparers and incentives to avoid self-reporting problems. The objective of this study is to investigate the effects of problem severity and recovery strategy on managers’ going concern disclosure judgments and decisions. We conduct an experiment with 84 experienced managers involved with financial reporting and find they are most likely to recommend going concern disclosure when financial distress is high and the recovery plan focuses on debt and equity. The results also suggest that managers have higher “substantial doubt” thresholds than auditors, and their perceptions regarding the fairness of the going concern standard also influence their decisions about disclosures of going concern issues.