Abstract
Going concern (GC) assessment is a central element in the audit process. During the Global Financial Crisis the increasing number of companies receiving a going concern opinion (GCO) has stimulated public interest on this topic. Our study fuels the debate about the financial indicators used in professional practice distinguishing between the big4 and non-big4 auditors’ perspectives. Similar studies have been conducted in the past that investigated which financial ratios are the most widely used in practice. However, in 2013 Carson et al stressed the fact that the audit environment is in constant evolution, therefore it is essential to update the evidence. Our results highlight which financial indicators in the auditors’ opinion are more effective to assess whether the entity is able to continue as a GC. Our research can be useful first of all for auditors in small and medium entities, but also for dierctors, due to the fact that there is a lack of studies regarding the indicators proposed by ISA 570, where the attitudes of the big4 and non-big4 are compared.
Highlights
Introduction and Institutional Framework in ItalyIn Italy, the Going concern (GC) principle is governed for not listed companies, by Article 2423-bis of the Civil Code (Principles of Financial Reporting), paragraph 1) which states that “the following principles shall be observed in preparing financial statements: all items shall be accounted for in accordance with the prudence concept and on a going concern basis”
Framework in Italy In Italy, the GC principle is governed for not listed companies, by Article 2423-bis of the Civil Code (Principles of Financial Reporting), paragraph 1) which states that “the following principles shall be observed in preparing financial statements: all items shall be accounted for in accordance with the prudence concept and on a going concern basis”
The GC principle “affects all of the assessments made in the financial statements” (Superti Furga 1991), given that in the event of GC uncertainties it is necessary to prepare the statements using criteria other than those that would be used for a viable firm
Summary
In Italy, the GC principle is governed for not listed companies, by Article 2423-bis of the Civil Code (Principles of Financial Reporting), paragraph 1) which states that “the following principles shall be observed in preparing financial statements: all items shall be accounted for in accordance with the prudence concept and on a going concern basis” (this rule was introduced by Legislative Degree 127 of April 9, 1991). For listed companies, this principle is governed by IAS 1, Presentation of financial statement. When the financial statements cannot be prepared on a GC basis, Capaldo (1998) has emphasized that a tangible or intangible asset which would have a very high value if accounted for under the assumption that the business will continue will have practically no value if the business is expected to be liquidated.
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