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Greater Reliance on Major Customers and Auditor Going‐Concern Opinions

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  • Dan Dhaliwal
  • Paul N. Michas
  • Vic Naiker
  • Divesh Sharma

Abstract

In this study, we predict and provide evidence that distressed firms that rely more heavily on major customers for sales have a comparatively higher incidence of receiving going‐concern opinions (GCOs). Moreover, we find that the effect of increased reliance on major customers is driven by firms that are more distressed. We also theorize that variations in key characteristics of the relationship between a distressed firm and its largest major customer are incrementally linked to GCOs, and present evidence consistent with this. Specifically, we find that the effect of greater reliance on major customers is driven by firms that are relatively smaller than their largest major customer. Additionally, we find that greater reliance on major customers is positively (negatively) associated with GCOs when firms are in a shorter (longer) relationship with their major customer and when firms have a different auditor to (same auditor as) the largest major customer. Overall, our study indicates that supply chain relationships are relevant business risks associated with auditors' going‐concern assessments. Degré élevé de dépendance à l’égard des principaux clients et doute des auditeurs quant à la continuité de l'exploitation Les auteurs formulent et étayent l'hypothèse selon laquelle les auditeurs sont, comparativement, davantage susceptibles d'exprimer un doute quant à la continuité de l'exploitation à l’égard des entreprises en difficulté financière dont les ventes dépendent plus lourdement de leurs principaux clients. Ils constatent en outre que l'incidence d'un degré élevé de dépendance à l’égard des principaux clients s'accentue dans le cas des entreprises dont les difficultés financières sont plus sérieuses. Les auteurs élaborent également une théorie, attestée par les données qu'ils recueillent, suivant laquelle les variations des caractéristiques essentielles de la relation entre les entreprises en difficulté financière et le plus important de leurs principaux clients ont un lien différentiel avec le doute quant à la continuité de l'exploitation. Ils observent plus précisément que l'incidence d'un degré élevé de dépendance à l’égard des principaux clients est associée aux entreprises dont la taille est proportionnellement plus modeste que celle du plus important de leurs principaux clients. Ils constatent au surplus que le degré élevé de dépendance à l’égard des principaux clients est en relation positive (négative) avec le doute quant à la continuité de l'exploitation lorsque les entreprises entretiennent une relation de durée plus courte (plus longue) avec leur principal client et lorsqu'elles n'ont pas (ont) le même auditeur que le plus important de leurs principaux clients. Dans l'ensemble, l’étude révèle que les relations de la chaîne logistique comportent des risques d'affaires pertinents associés aux doutes exprimés par les auditeurs quant à la continuité de l'exploitation.

Suggested Citation

  • Dan Dhaliwal & Paul N. Michas & Vic Naiker & Divesh Sharma, 2020. "Greater Reliance on Major Customers and Auditor Going‐Concern Opinions," Contemporary Accounting Research, John Wiley & Sons, vol. 37(1), pages 160-188, March.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:1:p:160-188
    DOI: 10.1111/1911-3846.12551
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    3. Li, Min & Liu, Na & Kou, Aiju & Chen, Wenchuan, 2023. "Customer concentration and digital transformation," International Review of Financial Analysis, Elsevier, vol. 89(C).
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    5. Mei Cheng & Jacob Jaggi & Spencer Young, 2022. "Customer concentration of targets in mergers and acquisitions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1314-1355, July.
    6. Jyun‐Ying Fu, 2023. "Customer concentration and corporate charitable donations: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 545-561, January.

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