Credit challenges: Lenders review a company`s financial statements to assess creditworthiness and would be reluctant to lend money to a business that is not stable. An auditor is hired by a company to assess whether its business continuity assessment is correct. After a thorough review (audit) of the company`s finances, the auditor will provide a report with his assessment. Before an auditor issues a going concern rating, management has the opportunity to create a plan to take corrective action that can improve the company`s prospects. If the auditor determines that the plan can be executed and that concerns about the business are mitigated, no qualified opinion will be prepared. IOSCO is an association of securities regulators. It has approximately 135 ordinary members, associates and affiliates, twelve of whom are based in the United States. Two important IOSCO committees that follow this project are the Technical Committee and its Working Group No. 1 on Multinational Disclosure and Accounting. The Technical Committee is composed of 16 regulators46 that regulate some of the largest, most developed and most internationalized markets in the world. The aim is to examine the main regulatory issues related to international securities and futures transactions and to coordinate practical responses to these concerns. The Commission and the Commodity Futures Trading Commission are both members of this committee. We are represented by a member of the Commission.
« . The management of Ciba Geigy Limited and The Holderbank Group report a long list of management gains from improved financial disclosure [footnote omitted]. Divisions now report consistently, there is a more rational allocation of costs and expenditures are no longer charged to the surplus. In short, they found it easier to run the business.. (p. 1357) « Going concern » is an accounting term used to describe a business that is expected to operate for the foreseeable future, or at least within the next 12 months. It provides that the company will be able to generate revenue, meet its obligations and will not have to plan or liquidate in the coming year. Operating value is a value that assumes that the business will remain in operation indefinitely and continue to be profitable. The value of going concern is also known as the total value. This is different from the value that would be realized if its assets were liquidated – the liquidation value – because an ongoing transaction has the ability to continue to make a profit that contributes to its value. A business should always be considered an ongoing business, unless there is good reason to believe that it will leave the business. The concept of going concern is not clearly defined anywhere in generally accepted accounting principles and is therefore subject to a significant interpretation of when an entity should report it.
However, Generally Accepted Auditing Standards (GAAS) require an auditor to consider an entity`s ability to continue its activities. Additional financing, if possible, or debt restructuring to avoid liquidation of the company. The concept of going concern is a key assumption under generally accepted accounting principles (GAAP). It can determine how financial statements are prepared, affect the share price of a publicly traded company, and determine whether a corporation can be approved for a loan. These concerns are offset by the significant benefits realized by U.S. GAAP reporting companies due to improved quality of information available to management and shareholders as a result of U.S. GAAP reporting.18 It is important that convergence does not sacrifice the key elements of high-quality financial reporting, which U.S. investors currently appreciate. Investors benefit when they can compare the performance of similar companies, regardless of where those companies are based or in which country or region they operate. A reserved opinion, on the other hand, is not what a company wants to see. It is given when the auditor has doubts about the company and the assumption that it is an ongoing business. A qualified opinion can be a concern for investors, lenders and other stakeholders.
It would be impossible to identify all the reasons why iaSC and U.S. GAAP differ. However, some of the reasons for these differences can be attributed to the characteristics of the normalizers themselves. While both the IASC and the FASB are interested in improving the quality of financial reporting and increasing international comparability, they focus on different financial reporting environments. Since the FASB is primarily focused on the domestic market, the FASB standards as a whole are quite detailed and respond to the complexity of the U.S. economic environment and the demand for reliable, high-quality financial information from informed balance sheet users. IASC standards, on the other hand, respond to a variety of national perspectives on which financial reporting is most relevant and reliable for a particular topic.62 Therefore, the IASC develops standards without focusing on a specific economic environment, which can contribute to the IASC standards tending to be more general. This generality may be an inevitable feature of international standards, and further guidance at the national level may continue to be needed even in countries that use IASC standards as national standards. Quality audits start with high quality inspection standards. Recent events in the United States have highlighted the importance of high quality assurance standards while raising questions about the effectiveness of today`s audits and audit processes.3 We are concerned about the training, expertise, and appropriate resources used in today`s audits.
Suppose the liquidation value of Widget Corp. is $10 million. This amount represents the present value of inventories, buildings and other tangible assets that can be sold assuming the company is fully liquidated. However, the value of operating Widget Corp. could very well be $60 million, as the company`s reputation for being the world`s leading widget manufacturer and its ownership of patents and rights related to widget production means that the company should have a significant and steady cash flow of future cash flows. However, other jurisdictions that accept IASC standards may develop conflicting interpretations or accept applications of IASC standards that would not be acceptable in the U.S. and other jurisdictions, in part due to a lack of expertise, resources, or even the power to challenge a company`s application of accounting standards. We are trying to find ways to reduce the development of divergent interpretations of IASC standards.
