Interaction between Default Status and Affiliated Directors
The composition of the audit committee should be less important when there is less ambiguity and less need for judgment, and so the going-concern decision is more obvious.17 The more justification for issuing a going-concern report (1) the less likely management pressure can sway the auditor (i.e., the auditor has less need for the independent audit committee’s support), and (2) the less likely affiliated directors are to side with management.
17 We are indebted to an anonymous referee for suggesting this reasoning.