Research On The System Evolution And Economic Consequences Of Going-Concern Opinion

The going concern assumption is the basic accounting assumption about the status of accounting entity.It refers to the fact that,when preparing financial statements,the enterprise assumes that its business activities will continue in the foreseeable future,and it does not plan to or need to terminate the operation or get into bankruptcy liquidation.The going concern assumption is the foundation of financial statement preparation.If the enterprise's operation cannot continue,then preparing financial statements based on the going concern assumption is no more rational,and the financial statements as a whole will not reflect the true situation of the enterprise's operation due to extensive and massive material misstatements.Therefore,it is crucial that the certified public accountants issue audit opinions about the rationality of enterprise's preparing financial statements based on the going concern assumption and the enterprise's ability to continue as a going concern.In the recent years,the world economy is under downward pressure,and uncertainty risk is increasing in the process of economic operation.Thus,enterprise' operation faces unprecedented challenges.As a barometer of the economy,the capital market also breeds more risk,and risk prevention is becoming the emphasis of current economic work.The going concern ability of listed companies not only affects the heart of investors,creditors,employees and other stakeholders,but also closely relates to the steady and healthy development of capital market as well as the maintenance and appreciation of social wealth and resources.The fact that certified public accountants,the “gatekeeper” of capital market,timely deliver early warning signals to all parties in the market by issuing going concern opinions,in order to remind them to pay full attention to the risks of the enterprise's ability to continue as a going concern,is becoming particularly important in the current market environment.The going concern opinion(GCO)refers to a kind of modified audit opinion in which the certified public accountants clearly point out that the using of going concern assumption to prepare financial statements is not appropriate or there is significant uncertainty in the enterprise's ability to continue as a going concern.To ensure that the going concern opinion contains sufficient information and quality,and can play its due warning role in the capital market,is of great importance to the investor protection,the improvement of the capital market's efficiency of resource distribution as well as the guarantee of the long-term,stable and healthy development of China's economy.On December 28,2019,the securities law of the People's Republic of China(the new securities law)was formally deliberated and passed through.The new securities law comprehensively promotes the registration system of securities issuance and changes the stipulation that an enterprise should have the ability of earning profit continuously to the ability of continuing as a going concern.It also reforms the delisting system,by cancellation of suspension of listing,to greatly improve the delisting efficiency of enterprises with limited ability to continue as a going concern and promote the normalization of delisting.These measures of the new securities law further highlight the position and role of going concern opinion in the access and exit mechanism of capital market.The research on the GCO is thus of more practical significance.In the past few decades,in order to improve the quality of GCO and to continuously strengthen the early warning function and decision-making value of GCO,the world's major auditing standard setting institutions have been making unremitting efforts to develop higherquality auditing standards for going concern.Thus,a series of changes have taken place in the form and information content of GCO as well as the auditor's responsibilities related to GCO.These changes promote the evolution of auditing system of GCO.The auditing standards for going concern in the United States have experienced SAS No.34?SAS No.59?SAS No.126 and SAS No.132,with many improvements having been made in the definition of responsibilities related to GCO,the strengthening of auditor's responsibilities,and the issuance of GCO,promoting the establishment of relevant systems in other countries and regions.After the United States,the International Auditing and Assurance Standards Board(IAASB)began to work on the development of high-quality and internationally convergent auditing standards for going concern,and has been continuing to promote the reform of auditing system of GCO by many major initiatives such as “Clarity Project” and international audit report reform.China's auditing standards for going concern have been revised four times since it was firstly issued.From the initial reference to SAS No.59 of the United States to the substantial convergence with international auditing standards ISA 570 in 2006,and to the continuing to achieve comprehensive convergence with international auditing standards by drawing fruitful results from the international audit report reform,China's auditing standards for going concern have been moving towards the goal of closing the gap between the public's auditing expectations and the reality.In particular,the latest auditing standards for going concern issued in December 2016 marks the most significant institutional change in the development of GCO in China,which has a profound impact on the information content,early warning function and decision-making value of GCO.“With bronze as a mirror,you can correct your clothes;with history as a mirror,you can know the rise and fall.” In the historical context of continuous evolution and change of GCO,this paper first combs the main process of the evolution of the system of GCO,clarifies the development context and the latest development trend of the relevant system of GCO,and summarizes and comments on the internal logic,the impact and the crux of the evolution of the system.Secondly,this paper makes a detailed analysis of the implementation of auditing standards for going concern and the issuance of audit opinions in recent years,and comments on the overall effect of the implementation and the current overall status of China's listed companies' ability to continue as a going concern.Finally,this paper empirically tests the mechanism and paths of GCO in China's capital market,studies the risk transmission effect of GCO on investors,creditors and management of enterprise from the perspective of market reaction,debt financing and earnings management,and comprehensively examines the early warning function and decision-making value of GCO.Based on the above tests,this paper empirically tests the implementation effect of the latest auditing standards for going concern,and provides empirical evidence for whether the implementation of this latest auditing standards has achieved its due effect under the background of the full implementation of the new audit report standards in China.In the aspect of empirical research,this paper firstly tests the market reaction of GCO and has the following findings:(1)In the time window of one day,two days and five days before and after the GCO is published,the market reaction measured by CAR is significantly negative,which indicates that the securities market of our country has significant negative reaction to GCO.(2)The conclusion that the market reaction of GCO is significantly negative has short-term effect.On the fourth day after GCO is published,the average value of abnormal return AR begins to show positive,and the cumulative abnormal return CAR is not significant in the 10 days before and after the GCO is published.This means that in China's securities market,some investors have strong motivation to “shell”.Driven by speculation,some companies that should have seen their share price drop until delisting due to the issuance of GCO have not been seen as low as they should have been.(3)The market reaction of GCO is heterogeneous.The negative reaction of the market to the going concern disclaimer of opinion is the strongest,which indicates that the investors in our country can recognize that the going concern disclaimer of opinion is a kind of GCO with the strongest risk warning degree and the highest risk warning value.However,there is no evidence to show that the market can distinguish between the going concern unqualified opinion and the going concern qualified opinion,which reflects that the level of investors' cognition on the GCO still needs to be improved.(4)After the implementation of the latest auditing standards for going concern,the negative market reaction of GCO has been significantly enhanced,which indicates that the audit report reform in our country has significantly improved the risk warning function of GCO to the investors by making significant changes to the going concern auditing standards.Thus,the implementation of latest going concern auditing standards has played a due effect.This paper also empirically tests the influence of GCO on corporate debt financing and has the following findings:(1)Compared with non-going-concern modified audit opinion,the going concern opinion has an extra early warning function and decision-making value for creditors.In the next year,the debt scale of the enterprises with going concern opinion is 17.62% less than that of the enterprises with non-going-concern modified audit opinion,and the debt cost of the enterprises with going concern opinion is 9.47% more than that of the enterprises with non-going-concern modified audit opinion.This indicates that the creditors can identify the difference between GCO and non-going-concern modified audit opinion in the degree of risk warning.(2)There are significant differences in the impact of different types of GCO on corporate debt financing.The negative impact of going concern disclaimer of opinion on corporate debt financing is the strongest.(3)The comprehensive implementation of the latest going concern auditing standards has significantly strengthened the risk warning function of the going concern unqualified opinion to creditors,which further shows that the audit report reform of China has achieved its due effect.Finally,this paper tests the risk transmission effect of GCO on the management of enterprises from the perspective of earnings management.The findings are as follows:(1)After the GCO is issued,the enterprise management will increase the degree of earnings management in the later period under the pressure of market pressure and job preservation.(2)After the GCO is issued,the recessive degree of earnings management is significantly improved,which shows that the management is more inclined to implement real earnings management than the accrual earnings management.(3)The influence mechanism of GCO on the earnings management behavior of the management will have different effects due to the difference of the nature of the enterprise.As a kind of modified audit opinion,GCO has played a certain supervision mechanism for the earnings management behavior of state-owned enterprises but has a significant role in strengthening and promoting the earnings management behavior of private enterprises.This indicates there is a game of power between the internal supervision effect of GCO and its risk transmission mechanism of earnings management.(4)After the GCO is issued,managers tend to spend a lot of time and energy on earnings manipulation,rather than hard work on improving the real business performance,which will further damage the enterprises' ability to continue as a going concern and thus reduce the survival probability of enterprises.Therefore,in addition to market reaction and corporate debt financing,the internal relationship between GCO and enterprise bankruptcy can also be established from the perspective of earnings management.This paper systematically studies the evolution and the latest development of GCO,and comprehensively reveals the mechanism and early warning value of GCO in China's capital market,proving that GCO can realize the governance function of capital market to help the market to speed up the elimination of backward production capacity and production mode,stimulate market vitality and improve the efficiency of market resource distribution through the risk transmission mechanism to investors,creditors and enterprises themselves.Therefore,to continuously improve the institutional environment of GCO and to continuously strengthen and release the effect of GCO to the maximum extent in the risk prevention and exit mechanism of the capital market is the realistic demand of establishing a long-term stable and healthy development of capital market in China,and also the internal requirement of ensuring the stable,healthy and efficient development of China's economy.