The Impact on Issuance of Going Concern
Audit Opinion to the Auditor
Nur Fasihah Binti Zailan
International Islamic University Malaysia
Nur Fasihah Binti Zailan, Bachelor of Accounting, International Islamic University Malaysia.
Correspondence concerning this article should be addressed to Nur Fasihah Binti Zailan , Bachelor of Accounting, International Islamic University Malaysia, Jalan Gombak, 53100 Kuala Lumpur, Malaysia.
The purpose of this study is to conduct research in order to determine whether the auditor’s going concern opinion is useful or harmful to the auditor and to identify the importance of auditor’s judgement regarding a company’s going concern status. A survey is conducted where it is participate by the accounting students from accounting department of IIUM. It is about their opinion on going concern issues. Majority of students knew about going concern issue and they find that this issue is somewhat risky to auditor where they may make wrong judgement and received litigation from users of financial statements.
Going concern refers to a company's ability to continue functioning as a business entity. It is the responsibility of the directors to assess whether the going concern assumption is appropriate when preparing the financial statements. A company is required to disclose in the notes to the financial statements whether there are any factors that may put the company's status as a going concern in doubt. Financial statements are prepared on the assumption that the entity is a going concern, meaning it will continue in operation for the near future and will be able to realize assets and discharge liabilities in the normal course of operations (Citron D.2008). The different measurement may be needed when the entity is not expected to continue in operation for the near future.
The company's auditor must consider whether the use of the going concern assumption is appropriate, and whether there are material uncertainties about the entity's ability to continue to operate as a going concern that need to be disclosed in the financial statements (Wallace W. 1987). An auditor will consider such situation as negative trends in the operating results; there will be loan default and also rejection of trade credit from supplier if there is any going concern issues arise. An auditor who concludes that there is doubt exist with regard to the appropriateness of the going concern assumption is required to issue an opinion that reflect the exact situation. If the company has appropriately disclosed the doubt and risk, it is a modified report and if the company has not made appropriate disclosure, it is a qualified opinion and these are called going concern opinion.
When auditors are issuing a modified report of a company, the company may face bankruptcy. However, only small fraction of company that received modified report become bankrupt. In most cases there will be likelihood of company to change their auditor for the next year. An auditor’s report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many companies rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditor’s report is essentially worthless for investing purposes.
Statement of Problems
Recently, auditor’s profession is highly challenging. Auditor may face the risk of being sued by the audit client. For example is the case of Price Waterhouse Coopers (PWC) where they got lawsuit from British Petroleum (BP) because of not disclosing information on oil leakage that harmed the environment. The...
References: Bankruptcy codes and investor response to accounting disclosure: The case of going concern opinions.
Brad T. & Scott D. (2009). Does the going concern audit opinion have a stabilizing effect on the overall stock market?
Christian Chiang (2009). Insight into current practices in auditing environmental matters. Managerial auditing journal Vol,25 No.9 2010 pp. 912-933.
Effiezal, Mazlina, Kieran & Hasnah (2009). Institutional investors, political connection and audit quality in Malaysia. Accounting research journal Vol. 22 No.2, 2009.
Sharad A.,Steven B. & Sungsoo Kim (2009). The effect of Enron, Anderson, and Sarbanes-Oxley on the US market for audit services. Accounting research journal Vol. 22 No.1, 2009.
Please join StudyMode to read the full document