Abstract
Purpose: The main objective of this article is to go in-depth into the relationship between going concern audit opinion and certain characteristics of the company and auditor, including financial decline. Design/methodology/approach: A Logit analysis was carried out in order to enable us to discover the probability of receiving a going concern audit opinion. Findings: Characteristics of the company and characteristics of the auditor are discussed, and the analysis indicates that it is not financial decline, but rather registering losses and being audited by a small-scale auditor, that increase the likelihood of a company receiving a going concern audit opinion. Practical implications: The results obtained are interesting for the profession and users because they provide evidence of the reasons that converge in the cases where a going concern audit opinion is included in the auditing reports of companies characterised by being immersed in a financial crisis. Originality/value: This article considers the circumstances of both the company and the auditing process, which influence the fact that the auditing report includes a going concern audit opinion. In addition, the article includes the financial decline, and let us to analyze if the decline of the company’s financial position between t-1 and t causes the auditor to include a going concern audit opinion.
Highlights
IntroductionThe presumption that the company will maintain its activity in the future, plays an important role
In compiling financial statements, the presumption that the company will maintain its activity in the future, plays an important role
This work comes under the framework of the study on the Going Concern and on the auditor’s obligation to determine whether or not there is any material uncertainty to the company staying in business (NIA-570)
Summary
The presumption that the company will maintain its activity in the future, plays an important role. There comes a time when the decision to include the going concern audit opinion in the report cannot be postponed any longer in terms of risk This is when the auditor obliges the company to adjust its balance sheets downwards to justify the going concern audit report. It has been argued that this sudden decline is caused by the demands of the auditor, who forces all the assets and liabilities being reflected in the balance sheet, and their value according to the valuation rules and principles (Arnedo et al, 2012) In these cases, receiving a going concern audit opinion will produce a surprise effect on the information users, as they are not expecting their accounts to decline so suddenly. In this “paper”, we will test, whether in practice, the auditor waits until the last moment before including a going concern audit opinion on the company’s future, in accounts that show a sudden financial decline, or whether on the other hand, the financial decline observed in the annual accounts takes place gradually and the auditor acts correctly by including a going concern audit opinion when he really concludes that there is uncertainty regarding the company’s continuity
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