TY - JOUR
T1 - The auditor's going concern decision and Types I and II errors
T2 - The Coase Theorem, transaction costs, bargaining power and attempts to mislead
AU - Barnes, Paul
PY - 2004/11
Y1 - 2004/11
N2 - It is shown that, in the absence of transaction costs and in line with the Coase Theorem, the going concern decision is efficient in the sense that bias arising from either Type I or II errors is not expected. However, when transaction costs in the form of legal costs, are introduced, bias is expected. The direction of the error depends upon the auditor's relative bargaining power. It is also shown that its relative bargaining power provides an incentive for the client company to mislead. Finally, certain empirical observations pertinent to this analysis are discussed together with the regulatory implications.
AB - It is shown that, in the absence of transaction costs and in line with the Coase Theorem, the going concern decision is efficient in the sense that bias arising from either Type I or II errors is not expected. However, when transaction costs in the form of legal costs, are introduced, bias is expected. The direction of the error depends upon the auditor's relative bargaining power. It is also shown that its relative bargaining power provides an incentive for the client company to mislead. Finally, certain empirical observations pertinent to this analysis are discussed together with the regulatory implications.
KW - Audit
KW - Bargaining power
KW - Going concern
KW - Misinformation
UR - http://www.scopus.com/inward/record.url?scp=10244222424&partnerID=8YFLogxK
U2 - 10.1016/j.jaccpubpol.2004.10.003
DO - 10.1016/j.jaccpubpol.2004.10.003
M3 - Article
AN - SCOPUS:10244222424
VL - 23
SP - 415
EP - 440
JO - Journal of Accounting and Public Policy
JF - Journal of Accounting and Public Policy
SN - 0278-4254
IS - 6
ER -