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A comparison of management and auditor going concern risk disclosure: Evidence from regulatory change in Japan

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  • Kim, Hyonok
  • Fukukawa, Hironori
  • Routledge, James

Abstract

This paper compares management and auditor going concern risk disclosures. It exploits a unique regulatory change in Japan that impacted the going concern risk disclosure practice. Prior to 2009, managers were directed to make financial statement note disclosures if they considered there was substantial doubt about the going concern status. The note disclosures were required to be audited. After 2009, substantial doubt disclosures by management are not audited and can be considered voluntary. We test whether going concern risk disclosure is enhanced by requiring managers rather than auditors to make the disclosure voluntarily. Analysis shows increased overall levels of going concern risk disclosure after the 2009 regulatory change, which is substantially attributable to voluntary disclosure in the Business Risk section of annual reports. The results are of interest to regulators because they suggest that it is appropriate for managers to be assigned primary responsibility for going concern risk disclosure.

Suggested Citation

  • Kim, Hyonok & Fukukawa, Hironori & Routledge, James, 2020. "A comparison of management and auditor going concern risk disclosure: Evidence from regulatory change in Japan," Working Paper Series 234, Management Innovation Research Center, School of Business Administration, Hitotsubashi University Business School.
    • Handle: RePEc:hit:hmicwp:234
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/31153/070micWP_234.pdf
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    References listed on IDEAS

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    Keywords

    going concern; business risk disclosure; voluntary disclosure;
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