Audit Report Restrictions in Debt Covenants

• 成果类型: Article
• 署名作者: Menon, Krishnagopal; Williams, David D.
• 署名单位: Boston University; University System of Ohio; Ohio State University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12163
• 发表日期: 2016
• 页码: 682-717
• 关键词: going-concern opinions; loan syndicate structure; corporate governance; industry expertise; bankruptcy filings; INFORMATION; LITIGATION; QUALITY; MARKET; fees

摘要

While the debt-contracting literature has extensively examined financial covenants, there has been little attention paid to audit-related covenants. We focus on a covenant that restricts the borrower from receiving a going-concern audit report (GCAR covenant). We hypothesize that a debt agreement is more likely to include a GCAR covenant as the borrower's credit quality decreases and the length of the loan period increases, and that it is more likely to impose a covenant restricting the choice of auditor when the debt includes a GCAR covenant. Also, we expect that an audit client with a GCAR covenant will be charged a higher audit fee and is more likely to receive a going-concern audit report. We test these hypotheses on a sample of firms that issue private debt. Our results generally support our hypotheses. Our study suggests that lenders rely on the auditor's assessment in contracting, and audit-related covenants influence auditor behavior.