Convergence of audit and credit rating practices: Going concern ratings

Amid heightened concerns for systemic risk in the global audit and credit rating markets, this article takes a departure from the silo approach of the current debate on audit and credit rating by exploring the potential benefits of convergence of audit and credit rating practices, such as going concern (GC) rating (or audit rating) with notching relationship to issuer credit rating, an alternative practice platform for auditors and credit rating agencies (CRA) to form strategic alliances, and use of innovative insurance solutions to mitigate catastrophic litigation risks in order to facilitate the capital formation for such audit–credit rating alliances. If successfully implemented, the convergence would lead to potentially seven global audit–credit rating alliances (the Big 7) in the financial reporting industry, instead of an audit market dominated by the Big 4 and a credit rating market by the Big 3. Given the exploratory, conjectural nature of this article and non-existence of research literature on the convergence subject, issues and ideas discussed in this article, such as the auditor independence issue for assigning GC ratings and CRAs assigning GC ratings through internal audit practices, will inevitably require further conceptual exploration and fundamental research. The intent of this article is to spur further debate and research on the convergence of the two practices.