|
The Structural Agency Solution to Determine
Going Concern Status
Ren - Raw Chen, Rutgers University
Hsuan - Chu Lin, National Cheng Kung University
Michael Long, Rutgers University
ABSTRACT. This paper presents a positive theory to determine a firm’s going-concern for auditing. In accounting, the evidence shows that auditors do not want to give other than a going concern audit for large firms until they actually file for bankruptcy and must give a non going concern audit. To correct this situation, we develop an objective measure in a multi-period setting to determine a firm’s going concern status. This newly identified structural agency problem results from the different maturity structure of the debt and insufficient asset value to cover the present value of all future debt payments or equivalently a ‘negative equity value’ exists. What the firm does have is sufficient assets to make the next payment. Where the problem exists at significant levels, it provides a measure that the firm has insufficient ex ante earning power to meet its future debt payments and should receive a qualified going concern audit under current GAAS.
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
Back to Session Listing
|