The Impact of Religion on the Going Concern Reporting Decisions of Local Audit Practice Offices

We extend research on the effects of local audit practice office characteristics on audit quality by investigating whether audit offices in highly religious U.S. Metropolitan Statistical Areas (MSAs) exhibit going concern decisions that reflect heightened professional skepticism relative to audit offices in less religious MSAs. Prior research links religiosity to risk aversion and ethical development and suggests audit practice offices in more religious MSAs are more likely to issue going concern opinions because they exhibit greater professional skepticism. Our results indicate that audit practice offices located in highly religious MSAs are more likely to issue going concern audit opinions, consistent with greater levels of professional skepticism. Additional tests provide direct evidence consistent with the argument that these audit offices are more risk averse in issuing going concern opinions. In addition, we find that they issue going concern reports with greater bankruptcy prediction accuracy. Our findings are relevant to auditors, audit clients, researchers, and regulators