Going-concern Information in auditor's report-empirical study

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In January 2002, Japanese auditing standards were revised, and one of the characteristics of the revision was that additional information was required in the auditor's report. The additional information required included : (1)accounting changes, (2)subsequent events, (3)contingency events, (4)going concern doubt.Financial statements are based on the going-concern assumption. However, the question is, how should the management and the auditor deal with the matter when substantial doubt exist as to whether the business is a going-concern. GC information, so-called "red flag" information, became an issue at the time of the bursting of the bubble economy in Japan.This research is to examine how the additional GC information is being presented. I made three investigations of companies which have to observe the Securities Exchange Act and published the following results.(1)Listed companies giving additional GC information decreased as a whole.(2)The giving of additional GC information by companies in the new stock exchange market for listed and unlisted companies increased.(3)Liabilities in excess of assets, as the reason for giving additional GC information, decreased sharply. On the other hand, loss data negative cash flow (a combination of these two), as a reason for giving additional GC information, increased.Liabilities in excess of assets can be judged objectively, but the combination of loss data and negative cash flow cannot be judged objectively. Therefore the timing of the management's giving of GC information is a key issue.