Going… going… gone! En analyse af going concern revision efter den finansielle krise

Ebbe Smet‐Grosbøl

Student thesis: Master thesis


The object of this thesis is to analyse how Danish auditing of the going concern principle has changed as a result of the economic crisis. The thesis starts by accounting for the legislative basis of this area, explaining why regulation within the area primarily focuses on reporting of uncertainties relating to going concern. The regulation also attracts criticism for being inadequate in its description of audit procedures. The thesis subsequently highlights the main elements of current literature. These include debates on the self‐fulfilling prophecy, the devaluating effect of emphasis of matter paragraphs and the audit of fair value in illiquid markets. Based on this theoretical knowledge, a practical analysis is made of the going concern principle in Denmark after the economic crisis. This is done by identifying problem areas deriving from the crisis. In conclusion, the problem areas are generally identified as operating loss, fair value in illiquid markets, financing and subsequent events. The thesis subsequently describes how audit firms and practitioners protect themselves against these augmented risks, and the related measures are compared and discussed. This section also describes how auditors perform more audit procedures than actually required, and how financing has become the overriding focus of audit firms. The thesis provides practical examples, in which audit procedures and the auditor’s report are reviewed and explained. The thesis subsequently puts into perspective the identified going concern issues deriving from the economic crisis. These issues include: ‐ The self‐fulfilling prophecy and society's loss of confidence in the audit profession as a result of this theory. ‐ The devaluating effect of emphasis of matter paragraphs due to the increased tendency to express such paragraphs. ‐ The increased problems relating to the audit of fair value in illiquid markets as information about this market is difficult to access. The thesis moreover presents proposals for solving these issues. These proposals for solution comprise proposals for audit procedures in illiquid markets and for how the confidence in the audit profession may be restored. The thesis concludes that audit of the going concern principle has been hampered as a result of the economic crisis, and that the number of modified auditor’s reports issued is increasing heavily. This increasing trend is caused by auditors' aspiration to ensure satisfactory auditor’s reports. However, the trend poses the risk of declining confidence in the profession as auditors are perceived as self‐protecting and as auditor’s reports consequently become subject to a devaluating effect. The audit profession may thus find itself balancing on a knife’s edge, between issuing satisfactory auditor’s reports and society's declining confidence.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2009
Number of pages110