The Financial Statements used going concern basis in preparation is fundamental principle that viewed as the entity had intention to continue their operation of normal course of business for foreseeable future. Determine whether the going concern assumption to be use is director's responsibility that they should had assessed the entity's ability to sustain ongoing operation. Since the financial crisis booming from U.S over a year ago, the business environment had deterioration as results of credit crisis and economic recession that led to lack of finance credit to entities whichever the size or nature. How could be survive that is the most challenging aspect for all entity under this stringent situation, no matter how well performance they are previously. Consequently, the entity's stakeholder will cast concern the financial performance and operating condition of their business partner. They would have perception that the financial statement in associate with auditor's report of the entity could provide reliable information and adequately warning for their understanding and make suitable economic decision. Therefore, the auditor's judgment on appropriateness of director's going concern assertion had become critical and challenging. What auditor should be consideration and how difficulty for auditor give reasonably opinion on going concern matter that I would like to discussion.

Current Business Enviornment

In the past few months, the biggest economic country had sequently announced their first yearly performance from the financial crisis. They also provide analytical information to proved that the worst situation was gone and the economy will slowly recovery.

three major sections may cast uncertainty to the entity that the auditor must be consider while performing audit plan and risk assessment:

  1. The availability of finance, including entity's owner or bank facilities;
  2. The impact of recession for the entity's operation;
  3. The impact of recession for the entity's stakeholder, especially their Suppler and Customer;

Management and Auditor Responsibility

HKFRS 1 stated that the management must assess the entity's ability to operate in normal course of business in future at least 12 months from balance sheet date. Unless management intend to liquidate or cease trading, the financial statements should be prepare based on going concern basis. When the management aware of material uncertainties related to events that may cast doubt on the entity as going concern, the extent of uncertainties need to be disclose in financial statements.

HKSA 570 stated that the auditor should evaluate management's assessment that whether the appropriateness of management using going concern assumption in prepare financial statements. Auditor should also evaluate whether material uncertainties that may cast significant doubt on going concern assumption had been appropriate disclosures compliance with regulatory requirement.

Understand the Entity and Competency of Management

ISA570 stated that the auditor should consider whether event and related business risk exist may cast significant doubt on the entity ability to sustain going concern in foreseeable future. In current economic environment,

the rapidly change of business environment, The effectiveness of Governance systems exist may become important that entity should priority evaluating and improving. How did the system lead the entity survive and how to reduce the audit risk for the Going Concern Assertion.

IFAC (2009) issued practical guidance provided that the director should establish the effective and efficient framework for enterprise risk management and internal control which assures the director understands its risks and managed them. Good practice in risk management into all activities is essential to entity success. The entity should provide clearly and feasible strategic direction based on the risk assessment and ensuring that the resources of the director should be managed consistency with those directions.

Value Chain (2009) outlined 5 reasons of General Motors's Failure that were 1) Bad financial policies that focused by make money from financing loan rather than its normal course of business; 2) Uncompetitive Vehicles Built that were gas-guzzling; 3) Ignoring their competitive Toyota growing the market share since 80s; 4) Failure to innovate that ignored to produce and design better cars; 5) Managing in the bubble that not pay attention on market demand and poor evaluation scheme for managing performance.

Robert Runting (2009) noted that the competency of top management in entity does not keep pace with complexity of business environment. They may pay more attention in the future.

IFAC (2009) released the result of banker survey that over 70% rated the cash flow information is the most important on considering SME loan in coming 2 years.

Duncan Will (2008) Going Concern uncertainty should be address as early as possible in an engagement. Delay may make more difficult to discuss with client, may impair your objectivity and deterioration the problem.

The well design and practice Governance system may also provide confidence to auditor that the processes of carry out the Management Assessment had been widely consideration and the going concern assumption and Material Uncertainty had been disclosure.

Limitation of Auditor Judgment

ISA 570 stated that if the event had been identified, the auditor should obtain sufficient appropriate audit evidence through perform additional audit procedure to confirm whether or not material uncertainty exist that may cast doubt on entity ability to sustain going concern. Referring to uncertainty of availability of finance, what appropriate evidence could be obtained for audit judgment? APB (2008) provided that auditor may require obtain confirmation of loan facility from client's banker or make own assessment of bank intention through interview with director and entity's banker. The problem arise that the auditor would like to obtain the confirmation to conclude the condition of availability of finance in foreseeable future. In current economic environment, the bank may refuse to response due to preventing the risk of litigation.

We never predict what's the director real intention during the rapidly change of business environment. Even through the auditor had appropriated evidence that may significant doubt on entity ability to going concern.

Chris Reiter and John Martens (2010) General Motors Co. will close Opel's assembly plant in Antwerp, Belgium while the Opel business was already sold to Canadian in November 2009 in exchange sufficient funding.

BBC News (2009) President Barack Obama said that “give this iconic American company a chance to rise again” when GM had filed $171.81 billion in debt to bankruptcy protection chapter 11. GM also intended to sell their healthy asset to new entity which is 60% held by government. You may think that how many assets they owned for maintain the business? Even they were success of business reorganizing but may not sustain their operation if the auto-motor market remain weak. Could it be said their going concern is appropriate.

ISA570 provided that if the management assessment is different to the auditor knowledge which had sufficient evidence and the management unwilling do amendment, in auditor judgment, the auditor should give adverse opinion. The problem arise that how degree of particular knowledge should be expected the auditor know and judgment. In auditor evaluated that the risk management and internal control system had well establish and practical in preparing the assessment. Auditor is difficult to judge the assessment especially the projection of the industry trend.

*liability of wrong judgment for Materials misstatements of fact

ISA 580 The written representation from management may be the way that no sufficient audit evidence exists in auditor judgment.

Pressure of Auditor modify their Audit Report

According to ISA570 stated that based on the audit conclusion, the auditor should determine to give appropriative audit opinion that whether the appropriateness of going concern adopted and material uncertainties is adequate disclosure. However, under the turbulent economy, the modified audit report presented may lead the entity suddenly cease by over adversely reaction of the stakeholder even though the entity have scrambled to improve their condition. This outcome must reluctance to see by the entity especially the government when they were scrambled their effort to recovery the economic. What is the right thing auditor should do?

Rachel Sanderson (2010) The auditor of Vantis who had modified the auditor's report by adding emphasis of matter paragraphs that highlight the existence queries of auditor relating to cash flow and credit lines. In the following days of report presented, the Vantis share price had drop halved.

Michael Izza (2009) the stakeholder needs to understand the real significance of going concern disclosures and avoid making economic decision without fully considers the underlying of disclosures. Management and Auditor have a fiduciary duty to respond to such disclosures. If we failure, the consequences could be serious that not just in businesses matter but also to confidence in the economy more broadly.

Peter Vaides-Dapena (2008) GM failure will influence to the whole industry. In 2008, 23 of GM major supplier, total 2,100 in GM supplier list, was filed to bankruptcy and expected 700 GM dealers will out of business.

The fact is that even the financial statement disclosed material uncertainties, it does not mean the entity will go collapse. Otherwise, if there are no disclosures, it does not mean the entity is ability to continue in business.

Good Quality Control during Audit

Dr Steve Priddy (2010) sustaining the business during the current economic crisis, the entity should paid greater attention to Management accounts that provide diverse information how the entity has performed and where its future lies. The information may vital aid to current and future decision-making at all level of the entity.

Ms Helen Brand (2010) An International Business environment will increasing complex as more regulation amendment. The ACCA members are predict that skills on enterprise risk management and data knowledge will be important.

ISA315 require that auditor shall perform audit risk assessment to identify the significant risks of misstatement in Financial Statement through understanding the entity environment and its internal control system, including risks management. If necessary, Auditor may also discuss the identified potential key risk with other engagement partner for make appropriate judgment.

ISA330 require that the auditor shall response the assessed risks.

ISA570 provided that when the entity had history profitable operation and ready to financial resource that almost treated as going concern. There assumption may no longer appropriate during current economy and credit difficulty.

Howard Wolosky (2008) he was predicted that number of audit firm will be sues by the failing entity stakeholder within the first half of 2009.

Obtain the client's written representation is the most important as defensive document in current economic climate. These representation are helpful to identify the management take responsibility and ownership of preparing in their financial statement. However, it does not mean the auditor could lose their professional skepticism and due diligence during the engagement. ISA 580 provided guidance for reference.

Even through the economy recession and credit difficulty had been public knowledge for some time. However, the auditor



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