The Effect of Financial Distress, Firm Growth, and Previous Year’s Opinion on The Firm’s Going Concern Opinion

Amiruddin, Grace T Pontoh, Marina Lauren

doi:10.17762/pae.v58i1.766

Abstract

This research aims to examine and determine the impact of financial distress, firm growth, and opinion on previous year to firms‘going concern. The study was carried on service companies that are listed on Indonesia Stock Exchange during 2015-2017. A total of 210 samples were selected using the purposive sampling method. This research utilizes secondary data in the form of the firm’s financial statements and independent auditor’s reports. This research utilized logistic regression analysis to process the data. Results showed that financial distress and previous year’s opinion has significantly affect the firm’s going concern audit opinion while the firm growth has no substantial impact on the firm’s going concern audit opinion. Simultaneously, financial distress, firm growth, and previous year's opinion significantly affected the firm's going concern opinion.

Highlights

Investors have to be selective in making investment decisions because besides being able to provide profits, investment can provide losses
The unit of analysis used in this study is an organization in the form of service sector firms listed on the Indonesia Stock Exchange (IDX)
7 Conclusion and Suggestion This study concluded that the going concern opinion of the firms is affected by financial distress as well as the audit opinion of the previous year

Summary

Introduction

Investors have to be selective in making investment decisions because besides being able to provide profits, investment can provide losses. Based on IDX statistic data 2018, the Composite Stock Price Index (CSPI) decreased by -2.54% in 2018. Of the three business sectors, namely the main sector, manufacturing sector, and service sectors listed on the Stock Exchange Indonesia, most decreases in stock prices came from the service sector, which was -7.91%. This decrease became an alarm for investors to be more selective in making investment decisions. Investors must analyse in advance the feasibility of their investment plans to avoid future losses. One of the investors’ considerations in making investment decisions is the financial statements and the opinion of the auditor regarding financial statement of the firm

Objectives

Methods

Findings

Discussion

Conclusion