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The Going Concern - Theory And Practice In The Financial Audit

Author

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  • Tara Ioan Gheorghe

    (University of Oradea, Faculty of Economic Sciences)

Abstract

The financial audit is called in to take the responsibilities on prevention of shocking events in the life of a company. Therefore we have to look into both of some concepts and the practice of financial audit so as to improve its performance and utility. On this purpose we assume some proposals to going concern concept and its practically use improvement. Thus, taking in account the actual statements of the IFAC documents (ISA 570) and the latest results on \"going concern" research (A. Rosman 2011, Bihmani and Co. 2009, Geiger, Raghunandan and Rama 2005, N. Kuruppu and Co. 2002) we consider something more might be done to accurately clarify the concept and to meet the investors' requirements regarding financial auditors responsibilities on the future of the audited companies. We are going to focus on subjects such as: which are the responsibilities of the financial audit and the management regarding the going concern, what kind of audit should be performed on the matter of a company future, which are the best methods to analyze the future going of a company, where the information should comes from and how compulsory a mission of audit on "going concern" should be. Using a sample of a couple of listed companies filing for bankruptcy we reached a conclusion regarding the connection between going concern opinion and its real effects. The conclusion consists in the fact that there is not a compulsory connection between the going concern opinion and the decision for bankruptcy. On this basis and, as a result of studying the conclusions of the upper named authors, we assume the idea that a separate going concern audit mission should be conceived, organized and performed. In this sense the concept of going concept, itself, should be improved. In our opinion a new concept of going concern would have better practical results regarding both methodology of performing the assessment of an entity as going concern and the responsibility of financial auditors in issuing the financial audit opinion. Further research on this subject we will perform, analyzing more conclusive data with an emphasis on financial crisis effects.

Suggested Citation

  • Tara Ioan Gheorghe, 2011. "The Going Concern - Theory And Practice In The Financial Audit," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 631-635, December.
    • Handle: RePEc:ora:journl:v:1:y:2011:i:2:p:631-635
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    File URL: http://anale.steconomiceuoradea.ro/volume/2011/n2/089.pdf
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    References listed on IDEAS

    as
    1. Bhimani, Alnoor & Gulamhussen, Mohamed Azzim & Lopes, Samuel, 2009. "The effectiveness of the auditor's going-concern evaluation as an external governance mechanism: Evidence from loan defaults," The International Journal of Accounting, Elsevier, vol. 44(3), pages 239-255, September.
    2. Andrew J. Rosman, 2011. "Auditors' going‐concern judgments: rigid, adaptive, or both?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 10(1), pages 30-45, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    going concern; financial audit; IFAC; international standards; financial auditors.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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