Current developments in audit regulation and assessment of going concern

Abstract

Purpose: This dissertation aims to analyse the auditors’ work in relation to GC, taking into consideration what impacts it and what can be improved in such area. Aspects analysed include company-related and auditor-related considerations, difficulties experienced by auditors and changes in relevant audit regulation. The opinions of local business organisations about local bankruptcies and the auditor’s role in relation to GC have also been included. Design: A qualitative methodology approach was used, whereby semi-structured interviews were carried out with local auditors and business organisations. 12 interviews with auditors from different sized audit firms and 3 interviews with business organisations were carried out. Findings: Both auditors and business organisations believed that the previous AR did not communicate matters relating to GC clearly, hence, changes in relevant audit regulation are welcomed. Furthermore, such changes help bridge the information and expectation gap between the role of auditors regarding GC and what the public believes such role to be. Some considerations important to auditors in relation to GC are professional judgement and experience of the auditor, having appropriate audit documentation, using financial ratios, industry and size of the company and the type of management. The main difficulties auditor experience in relation to GC include the lack of management’s assessment and less formalised structure and lack forward-looking information in SMEs. Conclusion: Regulators and auditors should focus on educating management, particularly that of SMEs regarding their responsibilities about GC so that auditors will be better able to carry out relevant audit procedures. Auditors should consider using Altman’s Z-score and more financial ratios to aid their work. Experienced auditors should be engaged when there are GC issues and when auditing companies within industries such as construction, where GC problems may arise due to the nature of the industry. Value: This study has considered factors relevant to GC, concluding which of these are important to auditing GC locally. Moreover, perceptions of business organisations have showed the need to improve communication of GC matters through the AR.