At what point does an auditor decide that a company is at risk of being unable to continue in business – and need to highlight that risk by issuing a “going concern” emphasis of matter in their report?
The threshold is falling, according to new research funded by CPA Australia
. Auditors are increasingly deciding that the entities they audit may not be able to continue operating.
There were no surprises when going concern emphases of matter paragraphs, indicating events or conditions may cast significant doubt on the entity’s ability to continue as a going concern, in auditors’ reports increased during the global financial crisis of 2008 - 2010. They have not fallen since, however, particularly for smaller businesses. This is despite 21 years of consistent economic growth in Australia.
Do the results reflect the slowdown in the mining industry and lower Chinese investment? Or uncertainty about economic growth? During the research period of 2005 – 2015, the Australian Securities and Investments Commission (ASIC) increased its focus on whether directors were realistic about their going concern assumptions and said auditors should consider carefully their reporting obligations on going concern.
Have auditors become too cautious, or are they providing early warning signals on how uncertainty in the Australian economy is affecting companies?