Auditors and the Internet IPO "Bubble"

We study auditor going-concern opinion decisions around the time of the recent wave of stressed Internet companies filing to go public on Nasdaq. Our objectives are to investigate the veracity of claims of auditor acquiescence at this time and, more generally, to examine auditor decisions during what was arguably an asset pricing 'bubble'. With regard to the latter, and consistent with the view that market conditions influence auditor decisions, we find that the presence of a going-concern opinion varies inversely with recent Nasdaq performance. With regard to our former objective, during the bubble period of very high volume of stressed Internet companies filing to go public we report rather strong evidence that the Big5 firms became less likely to render going-concern opinions, corresponding to an almost four-fold increase in Type II errors. We believe our findings may be of some importance to regulators and standard setters.