Going Concern

Daniella Therese Krol & Camilla Sørensen Boe

Student thesis: Master thesis


In recent years, we have seen dramatically increased focus on the auditor's role and responsibility in connection with business bankruptcy. This is partly due to several major business bankruptcies, partly due to the gap between public expectations and the auditor's actual responsibility.
The above gives rise to questioning the auditor's actual role and responsibility with respect to assessing the going concern of a business, while at the same time examining how good the auditor actually is at making this very assessment.
In order to answer the above questions, we have prepared a hypothesis which generally seeks to establish how good the auditor is at predicting bankruptcies. We seek to answer the general question of the hypothesis through a number of sub-questions which are related to the relevant theory as well as to an analysis of all bankrupt businesses in Denmark in 2014.
We have primarily found the relevant theory in applicable regulation as well as in the International Standards on Auditing (ISA) which form the basis of the auditor's work. Moreover, we have procured articles and analyses prepared by the Danish Business Authority as well as FSR - Danish Auditors, which is the professional association of Danish state authorised public accountants.
The analysis of bankrupt businesses in Denmark in 2014 has been prepared on the basis of a representative sample distributed proportionally on the various judicial districts in Denmark. We have obtained financial statements of the analysed businesses for 2014. The analysis prepared showed that, other things being equal, the auditor is good at predicting bankruptcies. This conclusion is based on the fact that in 73% of the cases concerned the auditor has predicted a bankruptcy and has issued an appropriate auditor's report on the financial statements in question. To obtain an understanding as to whether it is sufficient that the auditor predicts bankruptcies in about seven of ten cases, the analysis also includes an examination of the 27% of the businesses whose bankruptcy the auditor did not predict, rendering in most cases an unqualified opinion.
The analysis prepared has been compared with similar studies from previous years. The comparison has been made to get an indication as to whether the increased focus on the auditor's role and responsibility in relation to going concern has resulted in more auditor's reports with emphasis of matter clauses or qualifications, and whether these have substance or are merely a result of the auditor's wish to “take precautions” to an even higher extent than previously.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages110