The Accounting Review Vol. 97 No. 4 2022
Management Going Concern Disclosure, Mitigation Plan, and Failure Prediction—Implications from ASU 2014-15
Abstract
The going concern (GC) assumption forms the basis for preparing financial statements unless liquidation becomes imminent. ASU 2014-15 requires management to evaluate GC uncertainties quarterly and provide disclosures in the notes. I compare management GC disclosures between the pre-standard and post-standard regimes. I find that the market reacts negatively to substantial doubt in GC only after ASU 2014-15. Next, I find the effect of ASU 2014-15 for quarterly reports, but not annual reports. More importantly, by employing detailed textual analysis to extract and categorize mitigation-plan discussions, I show that certain types of management mitigation plans are interpreted more positively by investors after ASU 2014-15, thereby alleviating the negative market reaction. These plans include issuing debt, debt restructuring, increasing revenue, and selling assets. Finally, I demonstrate that management GC conclusions are more indicative of corporate failures after ASU 2014-15 and that mitigation-plan discussions are associated with firms' future viability.
- DOI
- 10.2308/tar-2019-0432
- Volume
- 97
- Issue
- 4
- Pages
- 417-446
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref