SAS No. 59 states that when auditors believe that substantial doubt exists about a client's ability to continue as a going concern they should modify their audit report so as to indicate such doubt. This judgment is based in part upon an assessment of the likelihood that management's plans for alleviating identified conditions can be effectively implemented. Depending upon the effectiveness of these plans, the going concern modification may be subsequently resolved in one of the following manners: (1) bankruptcy, (2) a continuing going concern modification in the following year, or (3) successful resolution through removal of the going concern modification in the following year. The purpose of this exploratory study is to examine the relationship between management plans and going concern resolutions. We provide descriptive evidence on how frequently specific management plans are cited for companies receiving their initial going concern modification, analyze whether these management plans have been implemented as measured by subsequent management actions, and examine which specific management actions are associated with the resolution of going concern modifications. Using a one-year planning horizon, we find that companies not receiving a going concern modification the following year ("successful resolution companies") and companies continuing to receive a going concern modification implement cited management plans approximately 55 percent and 64 percent of the time, respectively, while bankrupt companies' management plans implementation rate is only 45 percent. In a multivariate setting, we also find that management's ability to sell assets, restructure debt, and issue new equity differentiates successful resolution, continuing going concern modification and bankrupt companies. Finally, we find that management plan variables provide incremental explanatory power over variables that proxy for SAS No. 59 existing conditions and events, variables identified from prior going concern resolution research.
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