Reflections upon the Accountability of Management and Auditors in Evaluating Going Concern
Author:
Prof. Eugeniu ŢURLEA, Ph.D, Mihaela MOCANU, Ph.D. Student
JEL:
DOI:
Keywords:
accountability, going concern, judgement errors
Abstract:
Currently, both at national and at international level, the economic world faces an increasing number of cases of insolvency and financial difficulties. On this background, the going concern assumption that, as a rule, underlies the preparation of financial statements, gains in significance. For investors and for the general public, the main source of signs of threats upon the going concern assumption of an entity consists in the entity’s financial statements and in the auditors’ report. The present article aims at presenting some reflections upon the accountability of management and auditors in evaluating the going concern assumption. First of all, the article’s purpose is to identify the relevant regulations regarding this assumption, both at national and European level, and at North-American and international level. Second of all, the concept of accountability is defined and several types of accountability are pointed out (public, political, managerial, professional accountability etc.). Last but not least, the article aims at analyzing the main responsibilities of the management and of the financial auditor in evaluating the going concern assumption.\r\nThe authors conclude that, on one hand, the managers’ accountability increased over time and, in general, refers to honest, authorised, efficient and effective use of funds, socially responsible behaviour (e.g. environmental, social and ethical), and effective corporate governance. In particular, the management is accountable for evaluating the adequacy of the going concern assumption, due to their accountability for the preparation of the financial statements, irrespective of the fact that the regulations contain explicit reference to this kind of accountability. On the other hand, the expectations from the financial auditor are high, since he/she is accountable for testing the management’s argumentation with respect to the validity of the going concern assumption.\r\n\r\n