You are to consider how the auditor approaches the directors going concern assertion; how and why has it changed over time; most importantly, what current criticism and proposals have been initiated since the credit c. Prepare this assignment according to the guidelines found in the APA Style Guide. An abstract is required. Are changes called for? ’….. ‘What can I draw from my data?’
For any business, there is always the assumption that the business will continue for a long time. In accounting, this assumption is referred to as going concern. According to the Framework for the Preparation and Presentation issued by the International Accounting Standards Board (IASB), the going concern is one of the two fundamental assertions used when preparing the financial statements (Deloitte, Framework, 2010). It ‘provides perspective on the future of the entity’ (Gibson, 2009) as it presumes the long – term continued existence of the company.
The primary responsibility for assessing the going concern lies with the company’s directors. On the other hand, the company’s external auditor has the responsibility of verifying whether such an assertion is valid and ‘has been adequately disclosed in the financial statements’ (Gray and Manson, 2008). The International Standards on Auditing (ISA) 570 discussed the extent of the auditor’s responsibility when it comes to auditing the management’s going concern assertion (IFAC, 2009).
The credit crunch and the bankruptcy of several big companies in 2008 and 2009 have spotlighted the growing apprehension on the going concern assumption. According to Ed Nussbaum, Chief Executive Officer of Grant Thornton, the public ‘will see an unprecendented number of going – concern footnote disclosures and clarification from the auditors’ (as quoted by Johnson, March 2009). This rise in going concern opinions (GCOs) had put more pressure on the auditors. It had also caused auditors and their clients ‘to get testy with each other about the company’s ability to survive’ as management sometimes sees GCOs as something that will contribute to the demise of the company (Johnson, April 2009).
This paper will analyze how the going concern assertion developed and its importance in a business entity.