External audit in the function of providing assurance in the correctness of the assumptions about the going concern assumption

Abstract

Expressing confidence in the correctness of the going-concern assumption of the client's company is a complex issue that requires attention. Based on the company's characteristics, auditors may indicate the problem of business continuity, but the uncertainty of future events that may affect the company to initiate or not to initiate bankruptcy proceedings remains. The client and the auditors bear the consequences of expressing a wrong opinion. The aim of the paper is to emphasize the auditor's responsibility in expressing opinions on the principle of the going-concern assumption, as well as drawing attention to the consequences that the auditor's opinion can cause. By reviewing literature and audit practices in different countries, the authors concluded that expressing a modified opinion expressing doubts about the continuation of business directly makes it difficult to conduct its business activities (it is harder to approve loans, find business partners, etc.). In this way, the chances of the company recovery are reduced. On the other hand, expressing an unmodified opinion, following which the client company opens bankruptcy proceedings, causes public dissatisfaction and suspicion in the auditing profession. Although users of financial statements expect an auditor's warning about the company's financial difficulties that lead to the initiation of bankruptcy proceedings, the auditor's responsibility is to express an opinion on whether the continuity of business is endangered and not whether the company will initiate bankruptcy proceedings.

Modern models for predicting bankruptcy to detect early signals of business failure: Evidence from Montenegro

“…Users of financial statements want to predict the future performance of companies [9,10] to make adequate business decisions, from which they will realize a certain benefit in the future and have the highest return on investment. Additionally, the requirements of the International Financial Reporting Standards and the International Auditing Standards indicate the issue of the responsibility of the company's management, as well as the independent audit of the financial statements, so that the assumption of the continuity of the company's operations is sustainable [11][12][13]. The previously stated, as well as the fact that the models for early detection of bankruptcy of companies are gaining more and more importance, became the motive for conducting this research.…”