Bankruptcies, audit reports, and the Reform Act

The Private Securities Litigation Reform Act (Reform Act) was enacted as la w in 1995 and represents a major victory for the public accounting professi on. Since audit reporting for publicly traded companies that enter bankrupt cy continues to be of interest to legislators and the public, the Reform Ac t also includes audit reporting requirements regarding the auditor's assess ments of a company's ability to continue as a going concern. This study exa mines the potential impact of the Reform Act on auditor reporting by examin ing audit reports for 383 bankrupt companies during the 1991-1998 period. T he results indicate that, after controlling for financial stress, company s ize, default status, audit reporting lag and bankruptcy filing fag, auditor s were less likely to have issued prior going-concern modified audit report s for bankrupt companies after the Reform Act.