Agent-based Simulation and the Auditor Going Concern Opinion – a Case Study of Frontier Airlines

The complex and interconnected world in which organizations operate presents many challenges to organizational sustainability and the traditional approaches audit firms use to assess the ongoing viability of their clients. We propose agent-based modeling (ABM) as a viable tool for auditors to account for the interaction of local and environmental factors to determine organizational success. To illustrate, we developedan ABM of the 2007 consumer airline market for Frontier Airlines. Frontier is impacted in the model by internal policies, competitors, and environmental factors such as fuel costs, federal regulation, and credit availability. The model incorporates this myriad of factors to simulate the market for a single year and produces an anticipated market share. The model estimated a 17.64% average market share for 2007 over the course of 90 runs – less than 0.20% different than actually earned by Frontier.We conclude with a discussion on how ABM can be effectively incorporated as a decision support tool into the going concern opinion auditors are required to issue on U.S. public companies.