37 4. If the auditor concluded the plan is not effective, the auditor
expressed no opinion disclaimer. 5. If the auditor concluded the plan would effectively but the
client did not disclose situation as mentioned in the notes to financial statements, the auditors expressed an unqualified
opinion. 6. If the auditor concluded the plan is effective but the client did
not disclose the situation in the financial statements, the auditor expressed the opinion unreasonable adverse opinion.
h. Benefits of Going Concern Information
Bankruptcy information can be useful for some parties as follows:
a. Creditors Bankruptcy information can be useful to take a decision who
will be granted a loan, and then helpful to monitor existing loan policy.
b. Investors Investor shares and bonds issued by a company would be very
interested in seeing the possibility of bankruptcy or failure of the company that sold the securities. Investors who hold an
active strategy to develop bankruptcy prediction model to see
38 signs of bankruptcy as early as possible and then anticipate the
possibility. c. Government
In some sectors, government agencies have a responsibility to supervise enterprises SOEs should always be supervised. A
government agency has an interest to show the signs of bankruptcy early in order to carry out actions that need to be
done early. d. accountants
Accountants have an interest in the survival of a business information for accountants will look at the ability of a
companys going concern. e. Management
Bankruptcy means the rise of the costs associated with bankruptcy and the cost is quite large. One research showed the
cost of bankruptcies could reach 11 - 17 of the value of the company. For example, the cost of direct bankruptcy is the cost
accountants and attorneys fees. While examples of indirect bankruptcy cost is the loss of sales opportunities and profits for
a few things like the restrictions that may be imposed by the court. If management can detect this bankruptcy early, then the
austerity measures could be done, for example by merger or
39 financial restruction so that the cost of bankruptcy can be
avoided.
i. Auditors Responsibilities
Auditors responsibility to evaluate whether there is substantial doubt on the entitys ability to maintain its viability in a reasonable
time period, not exceeding one year from the date of the financial statements being audited hereinafter the period will be referred to
the appropriate period of time. Evaluation auditor based on knowledge of the conditions and events that exist at or have
occurred before the field work is completed. Information on conditions and events obtained by the auditor of the application of
audit procedures are planned and implemented to achieve the objectives of the audit is concerned with managements assertions
contained in the financial statements being audited IAI, 2001: Section 341, PSA 30, Par.02.
Examples of conditions and events are as follows: 1. The negative trend, for example, recurring operating losses
occur, lack of working capital, negative cash flows from operations, the key financial ratios are bad.
2. Another indication of the possibility of financial difficulties, for example, failure to meet debt obligations or similar
agreement, delay in payment of dividends, the rejection of a
40 request by the supplier to purchase ordinary credit, debt
restructuring, the need to find new funding sources or methods, or the sale of some great asset.
3. The internal problems, for example, work strikes or other labor relations difficulties, large dependence on certain projects
successful, long-term commitments that are not economic, the need to significantly improve operations.
4. The problems that have occurred outside, for example, the court filing, the release of the legislation or other problems that
may compromising the ability of the entity to operate, 48 losing franchise, license or essential patents, a major loss of customers
or suppliers, large disaster losses, such as earthquakes, floods, droughts, that are not insured, but the insurance is not adequate.
Auditor has the responsibility to assess whether there is substantial doubt on the ability of the business unit continued
survival Isaac, 1998: 3. The auditors assessment was based on knowledge of the conditions and events that exist at or have
occurred before the field work is completed. However, the auditor is not responsible for the condition or predict future events Isaac,
1998: 3. According to SAS No. 59 in Akers et. al. 2003 as cited
Setiawan 2006: 64, the auditor is responsible for evaluating the
41 clients ability to continue its business going concern. The terms
contained in SAS No. 59 is as follows: 1. The auditors responsibility is to evaluate whether the entity
going concern for a period of not more than a year from the date of the audited financial statements.
2. The Auditor is not responsible for predict or forecast of future events.
3. The bankruptcy by a company that did not receive reports going concern, although one year from the balance sheet date,
does not require the auditor of insufficient performance. 4. The auditor does not have to carry out a specific procedure to
determine the going concern entity. Audit procedures for audit purposes the other considered sufficient.
5. The auditor is required to evaluate managements plan to reduce the incidence and circumstances that indicate
considerable doubt of the companys going concern. 6. If the auditor concludes that there is doubt, the auditor should
consider the effect of financial reporting and disclosure, to determine the impact of the audit opinion.
