The economic literature documents that the investment rate in intangible assets, including intellectual property (IP), has far outpaced that of tangible assets for several decades. In this context, our research delves into the impact of self-created intangible assets on the auditor’s risk assessment. We present compelling evidence that, on average, research and development (R&D) knowledge capital is associated with higher audit fees. Using patent-based metrics as the proxies for innovation outcomes, we reveal that the number of patents (quantity), patent citations (quality-adjusted quantity), and patent technology classes (scope) all positively correlate with audit fees. Additional analyses show that innovation efficiency is negatively associated with audit fees. Furthermore, firms with a higher intensity of knowledge capital are more likely to receive going concern opinions than those with significant innovation outcomes. These findings provide valuable insights into the complex relationship between intangible assets and audit risk assessment.

Corporate management and their auditors are required to evaluate whether there is a risk that the company’s ability to continue as a going concern is impaired. For fixed asset-intensive firms, however, regulatory inspections consistently identify problems with auditors’ testing of property, plant, and equipment (PPE), raising doubts about whether auditors understand the risks associated with these assets. This paper examines whether auditors incorporate the risks associated with PPE into their going concern evaluation and the accuracy of that evaluation. Using probit regression on financial and auditing data of U.S. public firms contained in S&P Global Compustat North America, Audit Analytics, and the Center for Research in Security Prices (CRSP) from 2000 to 2019, this paper examines the effects of PPE intensity, impairment, and age on the likelihood that an auditor issues a going concern modification. We test the accuracy of the auditor’s going concern evaluation by comparing it to the client’s subsequent viability or bankruptcy. Our results find that PPE intensity and PPE impairments are positively associated with the likelihood of an auditor issuing a going concern modification, indicating that auditors view PPE as contributing to substantial doubt about the entity’s ability to continue as a going concern. We do not find a significant association between PPE age and going concern modification. Additionally, the going concern evaluation is more accurate for firms with higher PPE intensity. These findings imply that auditors appropriately consider PPE assets in their going concern evaluations.

In 2015, the Financial Accounting Standards Board (FASB) issued an Exposure Draft (ED) as part of its first significant project in over 20 years on financial reporting by Not-for-Profit organizations (NFP). In this study, we categorize the 264 letters received on the ED by the type of respondent and analyze the responses using ANOVA, multiple comparisons tests, and multidimensional scaling. Ultimately, as Phase 1 of its NFP project, FASB issued accounting standards update (ASU) 2016-14 containing proposed changes supported by a majority of the respondents to the ED. The Board deferred recommended changes with less support from respondents to Phase 2 of the project. Although constituents often accuse accounting standard setters of standards-overload and for being unresponsive to their comments (Herz 2003), our findings indicate otherwise. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G00; L31; M40.