Beyond Financial Ratios: An Analysis of Qualitative and Quantitative Factors Driving Management-Auditor Divergence in Going Concern Reporting

Abstract

This study examines the drivers of divergence between management’s going concern assertions and auditor opinions, moving beyond traditional reliance on quantitative financial ratios. We propose an integrated framework, grounded in agency theory and judgment decision-making, that incorporates qualitative factors. Using a sample of S&P 500 companies (2020–2023) and logistic regression analysis, we investigate the direct and interactive effects of weak corporate governance, low management credibility, and adverse market conditions. Results indicate that poor governance increases the likelihood of divergence by 47.1 percentage points per governance weakness, while low credibility increases it by 66.9 percentage points. Crucially, these qualitative factors act as powerful amplifiers, more than doubling the perceived risk of financial distress. Our findings underscore the necessity for holistic audit risk assessments that blend financial metrics with qualitative context, offering actionable insights for auditors, directors, and regulators to enhance judgment consistency and financial reporting integrity.