Auditors’ and management’s approach towards the going concern assessment

Abstract

PURPOSE: The Going Concern concept is a fundamental underlying assumption in preparing financial statements. The role of auditors and management is both difficult and crucial in conducting the Going Concern assessment. This study examines both auditors’ and management’s approach towards this assessment within the local scenario. DESIGN: To address the research objectives, a qualitative research method was adopted. 16 semi-structured interviews were conducted with 4 Listed Entities, 4 Private SMEs and 8 auditors. This was further corroborated with documentary research being the Annual Report of the same 8 interviewed entities. FINDINGS: The findings suggest that the Going Concern assessment is not always prioritized by Maltese entities. Similarly, the auditors’ approach towards this assessment also differs on a company-by-company basis. The auditors suggest that the current regulations on Going Concern are value-adding to the Audit Report. However, it could be that financial statement users find the Audit Report too long which might result in important Going Concern statements being overlooked. Undoubtedly, Covid-19 has highlighted the importance of Going Concern where the auditors and entities emphasised how the pandemic added further considerations in conducting this assessment. Nevertheless, auditors and entities suggested that the pandemic emphasised the need that a Going Concern assessment is conducted. CONCLUSION: This study concludes that the Going Concern assessment should always be conducted and not only in periods of disruptions. In return, this will provide stakeholders with transparency on entities’ Going Concern status whilst enhancing user confidence within the auditing profession. VALUE: This study aims to provide a thorough understanding on the considerations made when entities and auditors conduct the Going Concern assessment. It is also expected that Maltese entities and auditors will benefit from the conclusions and recommendations of this study in how they can prioritise this fundamental concept.