Auditing refers to the process of inspecting different types of financial accounts of the companies so that it can be ensured that whether there is any material misstatement or not (Louwers et al. 2015). It implies that the auditors play a crucial role in financial well-being of the companies. For this reason, the auditors have different types of responsibilities in the business organizations. In this context, it needs to be mentioned that the auditors have certain responsibilities in respect of going concern-reporting decisions for the bankrupt companies (Arens, Elder and Mark 2012). There is not any exception of this fact in case of the companies of Singapore. It is the responsibility of the auditors to confirm on the fact that whether any organization can continue their operations as a going concern. The auditors are required to be alert every time they use the assumptions of going concern (William Jr, Glover and Prawitt 2016). For this purpose, International Auditing and Assurance Standards Board (IAASB) have provided the auditors with the required standards and guidelines before considering assumptions of going concern. In the recent economic condition, the auditors of the companies face major difficulties in the evaluation of the effects of credit crisis and economic downturn on the ability of business entities to operate as going concern. For all these reasons, it is the responsibility of the auditors of the companies to comply with all the required standards and regulations of IAASB at the time of engaging the audit procedures of the going concerns (Mock et al. 2012). The main aim of this report is to analyze and evaluate different types of responsibilities of the auditors of bankrupt companies in Singapore considering the going concern assumptions. In the recent times, it can be seen that the rate of bankruptcy has increased in Singapore massively. Considering this fact, this report has utmost importance.
The concept of going concern has its own importance and it is considered as a basic underlying assumption of accounting. According to the assumption of going concern, a company or business entity will be able to continue their operations for a period of time that is sufficient for the achievement of their objectives, goals, commitments and various obligations (Carson et al. 2012). It implies that the business entity is considered to continue their business for unforeseeable period. Under the regulation of International Accounting Standards (IAS) 1, Presentation of Financial Statements, unforeseeable period is considered as a period of 12 months from the reporting date f the entity (Kaplan and Williams 2012). The concept of going concern is considered as an underlying assumption and because of this, it can be assured that the business entities do not have the necessity or intonation for liquidation or reduction in the materiality level of their financial statements. In case, the auditors of the organizations conclude that they do not have any alterative besides liquidation or the reduction in the materiality level, the financial statements of those organizations will not be prepared based on the assumption of going concern, but they need to be developed on different basis (Kumor and Poniatowska 2017).
Auditors of the business organizations have the responsibility for the evaluation of the fact that whether there is any doubt on the ability of the business entities to continue like a going concern for a specific time and this period should not exceed 12 months. The auditors are required to do this evaluation based on their knowledge about different kinds of events and conditions occurred within the organizations prior to the audit operations (Blay and Geiger 2013). There is a necessity of this evaluation as it is highly related with the ability of the business entities to meet the present obligations of their businesses. There are many instances in Singapore that companies became bankrupt due to their inability meet the present obligations of their businesses. For this reason, it is the duty of the auditors to collect necessary evidences to support the going concern assumptions. Audit evidences or necessary information can be obtained by the application of various auditing analytical procedures for the achieving of audit objectives (Sundgren and Svanström 2014). It implies that the auditors ensure the ability of the business entities to continue as a going concern for a reasonable period in certain manners that are discussed below:
In this context, it needs to be mentioned that the auditors do not have any responsibility to predict any future events or conditions. Business entities may decline to discontinue their business operation as going concerns after the opinion of the auditors. It is fully on the companies that whether they want to continue their business operations or not as going concerns after the receiving the report of the auditors. However, it does not indicate that the auditors did not perform adequately as the auditors only have the responsibility to express their opinion about going concern position of the company in the presence of appropriate evidences (Amin, Krishnan and Yang 2014). In the absence of proper audit evidences, the opinion of the auditors will be of no value. Thus, it is required to have sufficient audit evidences. The same concept is applicable for the auditors of Singapore in providing going concern opinions for bankruptcy. The auditors of Singapore are required to obtain enough information about the financial position of the companies of Singapore before considering them as unable to continue as going concern.
There needs to be the presence of sufficient audit procedures for the determination of the going concern position of the business entities as it is not sufficient to proceed with audit operations solely. It implies that there must be sufficed audit procedures for the ascertainment of the ability of the companies to continue as a going concern. The following discussion shades lights on some of the procedures:
The auditors are required to conduct various Analytical Procedures for testing various aspects of the audit entities; examples of audit analytical procedures are tests of control, test of details and others. All these provide the auditors with correct insight about the financial position of the companies. The next procedure is the Review of Subsequent Events of the audit entities. Many important financial transactions take place between the financial reporting date and issue of financial statements (Sormunen and Laitinen 2012). Auditors are required to evaluate and analyze these events for getting better insight about the financial position of the companies as it helps the auditors spotting the financial loopholes in the companies. The next procedure is Compliance Check related to terms of debts and loan agreements. This analysis shows the auditors the debt position of the companies. The inability to pay debts and loans can be determined from this analysis. After that, the auditors are required to conduct inquiry on the legal counsel, claims, litigations, claims and assessments of the audit entities. These aspects help the auditors in the identification of compliance issues with legislative rules and regulations. The above discussion implies that the auditors of Singapore are required to conduct these audit procedures before providing the opinion on going concern status of the companies (Ratzinger-Sakel 2013).
At the time of performing the above-discussed audit procedures, the auditors are required to identify certain information about certain events or conditions at the time of the consideration of the doubt that whether the company can continue its operation or not as per going concern assumptions. These conditions and events have utmost significance and some of them have significant connection with important events. The following discussion shows some examples of these types of events and conditions:
Auditors are needed to identify Negative Trends in the business operations like recurring the operating losses, major deficiencies in working capital, the existence of negative cash flows in the operating activities, the presence of adverse financial ratios and others. All these aspects indicate towards the development of doubts for going concern assumptions for the companies that can lead to bankruptcy (Kaplan and Williams 2012). After that, auditors are required to identify various dormant indications about the financial difficulties of the companies. Default on the payment of loan can be considered as one of these kinds of events as it indicates towards the weak financial position of the companies. Other issues in this category are default in dividend payment, trade credit denials from the suppliers, restructure of debts, noncompliance with the statutory capital requirements and others. The next condition is Internal Matters. Some internal matters in the companies indicates that the company will not be able to continue as a going concern for long; like stoppage of work as a result of labor difficulties, overdependence on the success of some specific projects and others (Sormunen et al. 2013). Some of the external matters are loss of franchise, license issues, patent issues, loss of major customers as well as suppliers and others. The consideration of all these aspects will be helpful for the auditors of Singapore as they are the potential indicators of the bankruptcy of the companies.
After the examination of the above incidents or events, if the auditors of the companies find that there is significant doubt about the company in continuing their business operations as a going concern, then they consider the plan of the company’s management to resolve those issues. In this process, it is the duty of the auditors to obtain significant amount of information about the plan of the management in order to confirm the fact that whether the implementation of these plans will be able to mitigate the going concern risks or not (Ruhnke and Schmidt 2014). The following discussion shows the areas auditors need to consider in management’s plan:
The auditors are responsible for reviewing the plan for disposal of the assets. This aspect includes the review of the agreements on the limitation of loan on similar covenants, encumbrances against assets, the marketability of the assets preparing for sell and the effects of the disposal of assets. After that the auditors are required to review the management’s plan to borrow money or restructuring debts (Carey, Kortum and Moroney 2012). This aspect includes the review of debt financing, various credit arrangements, sales leaseback of assets, existing arrangements for the restructuring of loans, the effects of borrowing plans on the management and others. The next review needs to be on the reduction or delay in the expenditures. This aspect includes the review of the feasibility of plans for the reduction of overhead or various expenditures related to administration, postponement of different research and development projects and others. The last review needs to be on the management’s plan on the increase in the equity of the owners. This includes the review of the plan of the management to increase the equity of the owners, the existing arrangements for the reduction of current dividend payments and others (Dhaliwal et al. 2015).
Thus, the above discussion shows that it is the duty of the auditors to identify the significant areas in the management’s plan to mitigate the negative effects of the above-discussed conditions and events on the going concern assumption of the companies (Schmidt 2012). For example, the auditors are required to review the adequacy of the management’s support for obtaining financial information regarding the disposal of assets. In case the auditors feel that the information of the management’s plan is useful for them, then they request the management for providing that information to them. In this case, it is the duty of the auditors to pay special attention in three major going concern assumptions. First, they need to consider the materiality aspect of the provided information. Second, they need to review the sensitive financial information. Third, they need to consider the inconsistency with the historical financial trends. In order to make the bankruptcy decisions of the companies of Singapore, the auditors are required to consider all the above discussed facts based on obtained information on them (Dhaliwal et al. 2015).
After the consideration of the plan of management, if the auditors conclude that there is significant doubt related with the ability of the business entity in continuing as a going concern, then they should consider the potential effects of these factors on the financial statements and the adequacy of their disclosures. The following discussion is about the information needs to be disclosed:
The auditors are required to disclose about the incidents and events that are responsible for giving rise of the doubt to continue as a going concern for a reasonable time. At the same time, the possible effects of these events on the whole business operations are needed to be considered (Firth, Mo and Wong 2012). After that, the auditors should disclose the evaluation report of the management’s plan to mitigate the risks. In this aspect, they should also disclose the possible discontinuance of business operations or bankruptcy due to these factors. At the same time, the auditors are required to disclose the plan of the management regarding the significant financial aspects of the organizations. Most importantly, the auditors are needed to disclose about the information related to the recoverability or assets and liabilities classification of the company (Feldmann and Read 2013).
The auditors of Singapore need to take into consideration of the need for disclosing the major conditions and events along with their possible effects on the company’s operation in case they conclude that there is significant doubt about the company’s operation as a going concern for a specific period.
In case, after the completion of all the above discussed stages, the auditor concludes that there is an existence of significant doubt about the entity’s ability to continue as a going concern for a reasonable time, the auditor is required to express his/her opinion about the going concern assumption of the entity through the phrase “substantial doubt about the entity’s ability to continue as a going concern” (Feng and Li 2014). In this context, it needs to be mentioned that there is an existence of a departure from generally accepted accenting principle in case the auditor conclude about the doubt of the company’s ability to continue as a going concern. This result may lead to a qualified audit opinion or an adverse opinion. There are many instances where the companies did not agree with the opinion of the auditors; in this case, this particular aspect will not affect the report of the auditors (Omer, Sharp and Wang 2015). In case it has been seen that there was substantial doubt about the entity’s ability to continue as a going concern for a specific period and the doubt has been removed from the statement of current year, then the auditor of the company is required to disclose an explanatory paragraph stating about this aspect in the audit report of the financial statements of the current year. The auditors of Singapore are required to follow the same while auditing the financial statements of the companies of Singapore. This will give them proper insight about the going concern status of the companies (Vanstraelen et al. 2012).
Conclusion
The above discussion shows that the auditors have certain responsibilities in respect of the going concern aspect of the bankrupt companies in Singapore. In this process, the auditors are required to develop the audit plan in an effective basis. In this step, the auditors are responsible for collection information about the financial aspect of the companies. Only the application of audit procedures is not enough for the auditors as they are required to apply various analytical procedures of auditing in confirming the going concern status of the companies; some of them are test of control, test of details and others. All these make the auditors aware about the financial control of the Singapore companies. In addition, certain events like working capital deficiencies, negative cash flows and others are the indicators of bankruptcy of the companies and the auditors are required to obtain information about them. In addition, the auditors of Singapore need to consider the plan of company’s management in mitigating the going concern risks and thus, they need to review all the plans of management. In the presence of doubts about going concern assumption, the auditors of Singapore are required to disclose them in the audit report. These are the major responsibilities of the auditors in respect of going concern entities of Singapore related to bankruptcy.
References
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