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Ph.d.-afhandling summary
 

Ph.d.-afhandling summary

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    Ph.d.-afhandling summary Ph.d.-afhandling summary Document Transcript

    • SUMMARY This Ph.D. thesis deals with going concern in a legal perspective. The thesis focuses on the manage- ment’s and the auditor’s responsibility in relation to going concern. Thus, the purpose of the thesis is to carry out an analysis of the management’s and the auditor’s responsibility in this area in a legal perspec- tive. With regard to the management’s responsibility in relation to going concern, the thesis deals with the regulation of the going concern assumption and hence the management’s responsibility in relation to going concern according to accounting law, the management’s actual responsibility in this area accord- ing to accounting law, including the management’s assessment of going concern and the importance of the going concern assumption for the annual report, the management’s responsibility in relation to go- ing concern according to company law, the connection between the going concern assumption and hence the going concern concept according to accounting law, the concepts of financial position and loss of capital according to company law as well as the concept of insolvency according to bankruptcy law, the management’s responsibility in relation to going concern according to law of torts as well as the connection between the management’s responsibility in this are area according to accounting law, company law and law of torts, respectively. With regard to the auditor’s responsibility in relation to going concern, the thesis deals with the regula- tion of the auditor’s responsibility in relation to going concern according to auditing law, the auditor’s actual responsibility in this area according to auditing law, including the auditor’s assessment of and reporting about going concern, as well as the connection between the management’s and the auditor’s responsibility in relation to going concern according to accounting and auditing law, respectively. The thesis consists of five chapters. Chapter 1 contains the introduction. Chapter 2 deals with the going concern assumption and the management’s responsibility in relation to going concern according to accounting law, company law and law of torts, respectively. Chapter 3 deals with the auditor’s responsi- bility in this area according to auditing law. Chapter 4 deals with decisions and judgments about the management’s and/or the auditor’s responsibility in relation to going concern according to accounting and auditing law, respectively. Chapter 5 contains the conclusion. The thesis consists of two volumes. Volume 1 contains the five chapters as well as the Danish abstract and the present summary. Volume 2 contains the appendices and the service sections. The service sec- tions comprise lists of abbreviations, literature as well as decisions and judgments, respectively. The content of chapter 2-5 is elaborated below. As mentioned, chapter 2 deals with the going concern assumption and the management’s responsibility in relation to going concern according to accounting law, company law and law of torts, respectively. The purpose of this chapter is to carry out an analysis of this responsibility. In the chapter, some general remarks about the connection between the going concern concept ac- counting to accounting law and hence the management’s responsibility in relation to going concern according to company law, the concepts of financial position and loss of capital according to company law and hence the management’s responsibility in relation to going concern according to company law, the concept of insolvency according to bankruptcy law as well as the management’s responsibility in relation to going concern according to law of torts are first made. Next, the regulation of the going 693
    • Summary concern assumption and hence the management’s responsibility in relation to going concern according to accounting law is accounted for. Next, this responsibility is analysed. Next, the management’s re- sponsibility in relation to going concern according to company law is analysed. Next, the connection between the going concern assumption and hence the going concern concept according to accounting law, the concepts of financial position and loss of capital according to company law as well as the con- cept of insolvency according to bankruptcy law is analysed. Next, the management’s responsibility in relation to going concern according to law of torts is analysed. Next, the connection between the man- agement’s responsibility in this area according to accounting law, company law and law of torts, respec- tively, is analysed. Finally, the chapter and hence the analysis of this responsibility is summarised. It is important to be aware of the fact that going concern is not a company law and law of torts concept but an accounting and auditing concept. Thus, the management’s responsibility in relation to going concern according to company law and law of torts, respectively, is not a direct responsibility in relation to going concern but an indirect responsibility in relation to, for example, the company’s financial posi- tion and a possible loss of capital as well as a possible suspension of the company’s operations. In that connection, reference can be made to the Danish Private Companies Act (AL) paragraph 54, section 3, first sentence, as well as the new Companies Act (SL) paragraph 115, item 5, paragraph 116, item 5, and paragraph 118, section 2, which deal with the company’s financial position as well as AL paragraph 69a and SL paragraph 119, which deal with loss of capital. On the other hand, the management’s responsi- bility in relation to going concern according to accounting law is a direct responsibility in relation to going concern. It is evident from the section on the connection between the going concern assumption and hence the going concern concept according to accounting law, the concepts of financial position and loss of capi- tal according to company law and hence the management’s responsibility in relation to going concern according to company law, the concept of insolvency according to bankruptcy law as well as the man- agement’s responsibility in relation to going concern according to law of torts that this connection gen- erally consists in the fact that all these concepts and areas of responsibility are, in different ways, related to the continuation of the enterprise’s or – in the case of an enterprise that is operated as a company – the company’s operations. It is evident from the section on the regulation of the going concern assumption and hence the man- agement’s responsibility in relation to going concern according to accounting law that the going con- cern assumption and hence the management’s responsibility in this area according to accounting law is regulated in both the Danish accounting regulation, the community law accounting regulation, the in- ternational accounting regulation in the form of the regulation from the IASB and the American ac- counting regulation in the form of the regulation from the FASB etc. In that connection, the going concern assumption and hence the management’s responsibility in relation to going concern according to accounting law is regulated at both the level of legislation and directives, the level of guidelines and standards as well as the level of frameworks. However, the going concern assumption is not mentioned in the FASB’s framework. It is evident from the section on the management’s responsibility in relation to going concern according to accounting law, that this responsibility can be divided into the management’s assessment of going concern and the importance of the going concern assumption for the annual report. The importance of the going concern assumption for the annual report represents the management’s reporting about going concern because this reporting is expressed in the annual report. In that connection, the management’s assessment of going concern leads to the management’s reporting about going concern, which, con- versely, is the result of the management’s assessment of going concern. 694
    • Summary It is evident from the section on the management’s assessment of going concern, that this assessment can be divided into a number of important elements. These important elements can be analysed across the regulation of the going concern assumption and hence the management’s responsibility in relation to going concern according to accounting law. The first important element in the management’s assessment of going concern is the management’s pro- or reactive assessment of going concern. Here, the question is whether the management’s assess- ment of going concern is pro- or reactive in nature, that is, whether the management is always required to make an assessment of going concern or it is sufficient that the management makes such an assess- ment if there are circumstances that indicate that there are going concern problems. The second important element in the management’s assessment of going concern is the level of this assessment. The level of the management’s assessment of going concern is related to the level on which the management is required to assess the presence of the going concern assumption. Here, the question is whether the management is required to assess the presence of the going concern assumption on the enterprise or the activity level. The third important element in the management’s assessment of going concern is the timing of and the time horizon for this assessment. Here, the question is partly whether the management’s assessment of going concern is required to be made on the balance sheet date or the date of the management’s ap- proval of the annual report, partly which time horizon that is required to be used in connection with this assessment, for example, at least 12 months from the balance sheet date or the date of the man- agement’s approval of the annual report. The fourth important element in the management’s assessment of going concern is the content of this assessment. The content of the management’s assessment of going concern is related to which circum- stances the management is required to include in this assessment. The fifth and final important element in the management’s assessment of going concern is the belief criterion for the management’s assessment of going concern. The belief criterion for the management’s assessment of going concern is related to which degree of belief with the management that is necessary in order for the annual report to be prepared on a going concern basis. The importance of the going concern assumption for the annual report is not mentioned any further in this connection. It is evident from the section on the connection between the going concern assumption and hence the going concern concept according to accounting law, the concepts of financial position and loss of capi- tal according to company law as well as the concept of insolvency according to bankruptcy law that there – not surprisingly – are both similarities and differences between these concepts. These similari- ties and differences can be identified by comparing the concepts of financial position and loss of capital according to company law as well as the concept of insolvency according to bankruptcy law with the important elements in the management’s assessment of going concern. The similarities between the concepts are, among other things, related to the connection between the management’s pro- or reactive assessment of going concern as well as the concepts of financial position and loss of capital according to company law. 695
    • Summary On the other hand, the differences between the concepts are related to the connection between the level of the management’s assessment of going concern, the concepts of financial position and loss of capital according to company law as well as the concept of insolvency according to bankruptcy law, the connection between the timing of the management’s assessment of going concern as well as the con- cepts of financial position and loss of capital according to company law, the connection between the time horizon for the management’s assessment of going concern, the concepts of financial position and loss of capital according to company law as well as the concept of insolvency according to bankruptcy law and the connection between the content of the management’s assessment of going concern, the concepts of financial position and loss of capital according to company law as well as the concept of insolvency according to bankruptcy law. Besides these similarities and differences between the concepts, it is, of course, important to be aware of the general connection between the concepts, which, as mentioned, consists in the fact that all the concepts are, in different ways, related to the continuation of the enterprise’s or – in the case of an en- terprise that is operated as a company – the company’s operations, and which, by far, seems to over- shadow the differences between the concepts. Similarly, it is evident from the section on the connection between the management’s responsibility in relation to going concern according to accounting law, company law and law of torts, respectively, that there – not surprisingly – are both similarities and differences between these areas of responsibility. These similarities and differences can be identified by comparing the management’s responsibility in relation to going concern according to company law and law of torts, respectively, with the important elements in the management’s assessment of going concern. The similarities between the areas of responsibility are, among other things, related to the connection between the management’s pro- or reactive assessment of going concern as well as the management’s responsibility in relation to going concern according to company law and law of torts, respectively. On the other hand, the differences between the concepts are related to the connection between the level of, the timing of, the time horizon for and the content of the management’s assessment of going concern as well as the management’s responsibility in relation to going concern according to company law and law of torts, respectively. Besides these similarities and differences between the areas of responsibility, it is, of course, important to be aware of the general connection and hence similarity between the areas of responsibility, which, as mentioned, consists in the fact that all the areas of responsibility are, in different ways, related to the continuation of the enterprise’s or – in the case of an enterprise that is operated as a company – the company’s operations, and which, by far, seems to overshadow the differences between the areas of responsibility. As mentioned, chapter 3 deals with the auditor’s responsibility in relation to going concern according to auditing law. The purpose of this chapter is to carry out an analysis of this responsibility. Thus, the differences between chapter 2 and 3 are partly related to the fact that chapter 2 deals with the management’s responsibility in relation to going concern, whereas chapter 3 deals with the auditor’s responsibility in this area, partly related to the fact that chapter 2 deals not only with the management’s responsibility in relation to going concern according to accounting law but also with the management’s responsibility in this area according to company law and law of torts, respectively, whereas chapter 3, as a starting point, deals only with the auditor’s responsibility in relation to going concern according to 696
    • Summary auditing law. This is partly due to the fact that it makes no sense to talk about the auditor’s responsibil- ity in this area according to company law, partly due to the fact that the auditor’s responsibility in rela- tion to going concern according to law of torts – even though is actually makes sense to talk about this responsibility – is, to a great extent, in accordance with the auditor’s responsibility in this area according to auditing law. Thus, the auditor’s responsibility in relation to going concern according to law of torts is implicitly dealt with together with the auditor’s responsibility in this area according to auditing law. On the other hand, the management’s responsibility in relation to going concern according to company law and law of torts, respectively, is, to a much lesser extent, in accordance with the management’s re- sponsibility in this area according to accounting law. Besides the auditor’s responsibility according to auditing law and law of torts, respectively, it is also possibly to talk about the auditor’s responsibility in relation to going concern according to disciplinary law. Just like the auditor’s responsibility according to law of torts, the auditor’s responsibility in relation to going concern according to disciplinary law is, to a great extent, in accordance with the auditor’s responsibility in this area according to auditing law. Thus, just like the auditor’s responsibility according the law of torts, the auditor’s responsibility in relation to going concern according to disciplinary law is implicitly dealt with together with the auditor’s responsi- bility in this area according to auditing law. On the other hand, it makes no sense to talk about the management’s responsibility according to disciplinary law – neither generally nor in relation to going concern. In chapter 3, some general remarks about the connection between the management’s and the auditor’s responsibility in relation to going concern according to accounting and auditing law, respectively, are first made. Next, a few remarks about good auditor practice are made. Next, the regulation of the audi- tor’s responsibility in relation to going concern according to auditing law is accounted for. Next, this responsibility is analysed. Next, the connection between the management’s and the auditor’s responsi- bility in relation to going concern according to accounting and auditing law, respectively, is analysed. Next, a few remarks about the auditor’s responsibility in this area according to law of torts and discipli- nary law, respectively, are made. Finally, this chapter and hence the analysis of the auditor’s responsibil- ity in relation to going concern according to auditing law is summarised. It is evident from the section on the regulation of the auditor’s responsibility in relation to going con- cern according to auditing law, that this responsibility is regulated in both the Danish auditing regula- tion, the international auditing regulation in the form of the regulation from the IAASB as well as the American auditing regulation in the form of the regulation from the ASB etc. and the PCAOB, respec- tively. In that connection, the responsibility is regulated at both the level of legislation, the level of standards and the level of statements and interpretations. On the other hand, the responsibility is not regulated in the community law auditing regulation. It is evident from the section on the auditor’s responsibility in relation to going concern according to auditing law, that this responsibility can be divided into the auditor’s assessment of and reporting about going concern. In that connection, the auditor’s assessment of going concern leads to the auditor’s re- porting about going concern, which, conversely, is the result of the auditor’s assessment of going con- cern. It is evident from the section on the auditor’s assessment of going concern, that this assessment can be divided into a number of important elements. These important elements can be analysed across the regulation of the auditor’s responsibility in relation to going concern according to auditing law. The first important element in the auditor’s assessment of going concern is the auditor’s pro- or reac- tive assessment of going concern. Here, the question is whether the auditor’s assessment of going con- 697
    • Summary cern is pro- or reactive in nature, that is, whether the auditor is always required to make an assessment of going concern or it is sufficient that the auditor makes such an assessment if there are circumstances that indicate that there are going concern problems. The second important element in the auditor’s assessment of going concern is the level of this assess- ment. The level of the auditor’s assessment of going concern is related to the level on which the auditor is required to assess the presence of the going concern assumption. Here, the question is whether the auditor is required to assess the presence of the going concern assumption on the enterprise or the ac- tivity level. The third important element in the auditor’s assessment of going concern is the timing of and the time horizon for this assessment. Here, the question is partly whether it is sufficient that the auditor makes an assessment of going concern on the date of the auditor’s issuance of the auditor’s report or it is nec- essary that the auditor is alert to going concern problems throughout the entire audit process, partly which time horizon that is required to be used in connection with this assessment, for example, at least 12 months from the balance sheet date or the date of the management’s approval of the annual report and hence the date of the auditor’s issuance of the auditor’s report. The fourth important element in the auditor’s assessment of going concern is the content of this as- sessment. The content of the auditor’s assessment of going concern is related to which circumstances the auditor is required to include in this assessment. The fifth and final important element in the auditor’s assessment of going concern is the belief criterion for this auditor’s assessment. The belief criterion for the auditor’s assessment of going concern is not dealt with in connection with the analysis of the auditor’s assessment of going concern because this criterion is instead dealt with in connection with the analysis of the auditor’s reporting about going concern in the auditor’s report. In that connection, the belief criterion for the auditor’s assessment of going concern is, of course, referred to as the belief criterion for the auditor’s reporting about going concern in the auditor’s report, which is, however, the same thing. As mentioned, just like the auditor’s assessment of going concern, the management’s assessment of going concern can be divided into a large number of important elements. These important elements are completely identical to the important elements in the auditor’s assessment of going concern. It is evident from the section on the auditor’s reporting about going concern, that this reporting can be divided into the auditor’s external and internal reporting about going concern. The auditor’s external reporting about going concern comprises the auditor’s reporting about going concern in the auditor’s report. The auditor’s internal reporting about going concern comprises the auditor reporting about going concern in the auditor’s records and the auditor’s other types of internal reporting about going concern. The auditor’s other types of internal reporting about going concern comprise, among other things, the auditor’s reporting about going concern at the general meeting and the auditor’s reporting about going concern at management board meetings and meetings for those charged with governance, that is the management board, if any, the supervisory board, if any, and the board of directors, respec- tively. Just like the auditor’s assessment of going concern, the auditor’s reporting about going concern in the auditor’s report can be divided into a number of important elements. These important elements can also be analysed across the regulation of the auditor’s responsibility in relation to going concern accord- ing to auditing law. 698
    • Summary The first important element in the auditor’s reporting about going concern in the auditor’s report is the belief criterion for this reporting. The belief criterion for the auditor’s reporting about going concern in the auditor’s report is related to which degree of belief with the auditor that is necessary in order for the auditor not to issue a modified auditor’s report in the form of an auditor’s report with an adverse opin- ion if the annual report is prepared on a going concern basis. The second important element in the auditor’s reporting about going concern in the auditor’s report is the concept of going concern problems. The third important element in the auditor’s reporting about going concern in the auditor’s report is the neutrality or prudence principle for this reporting. Here, the question is whether a neutrality or a prudence principle applies to the auditor’s reporting about going concern in the auditor’s report, that is, whether the auditor is required to show special prudence in connection with this reporting. The fourth important element in the auditor’s reporting about going concern in the auditor’s report is the formulation of the auditor’s report in relation to going concern. The auditor’s internal reporting about going concern is not mentioned any further in this connection. It is evident from the section on the connection between the management’s and the auditor’s responsi- bility in relation to going concern according to accounting and auditing law, respectively, that this con- nection generally consists in the fact that both the management and the auditor are required to make an assessment of going concern. Of course, the management’s assessment of going concern is made in connection with the preparation of presentation of the annual reporting, whereas the auditor’s assess- ment of going concern is made in connection with the audit of the annual report. Not surprisingly, there are many similarities but also – at least apparently – a few differences between the management’s and the auditor’s responsibility in relation to going concern according to accounting and auditing law, respectively. These similarities and differences can be identified by comparing the important elements in the management’s assessment of going concern with some of the important ele- ments in the auditor’s assessment of and reporting about going concern in the auditor’s report, respec- tively. The similarities between the management’s and the auditor’s responsibility in relation to going concern according to accounting and auditing law, respectively, are, among other things, related to the connec- tion between the management’s and the auditor’s pro- or reactive assessment of going concern, respec- tively, the connection between the level of the management’s and the auditor’s assessment of going concern, respectively, the connection between the time horizon for the management’s and the auditor’s assessment of going concern, respectively, the content of the management’s and the auditor’s assess- ment of going concern, respectively, and the connection between the belief criterion for the manage- ment’s assessment of going concern and the auditor’s reporting about going concern in the auditor’s report, respectively. On the other hand, the differences between the management’s and the auditor’s responsibility in rela- tion to going concern according to accounting and auditing law, respectively, are, apparently, related to the connection between the timing of the management’s and the auditor’s assessment of going concern, respectively. However, even though, as a starting point, the timing of the management’s assessment of going concern is not in accordance with the timing of the auditor’s assessment of going concern, in 699
    • Summary reality, the timing of the management’s assessment of going concern is in accordance with the timing of the auditor’s assessment of going concern. As mentioned, chapter 4 deals with decisions and judgments about the management’s and/or the audi- tor’s responsibility in relation to going concern according to accounting and auditing law, respectively. The purpose of this chapter is to carry out an analysis of the decisions and judgments that exist about this responsibility. This analysis builds on the analyses of the management’s and the auditor’s responsi- bility in relation to going concern according to accounting and auditing law, respectively, in chapter 2 and 3, respectively. As mentioned, the differences between chapter 2 and 3 are partly related to the fact that chapter 2 deals with the management’s responsibility in relation to going concern, whereas chapter 3 deals with the auditor’s responsibility in this area, partly related the fact that chapter 2 deals not only with the man- agement’s responsibility in relation to going concern according to accounting law but also with the management’s responsibility in this area according to company law and law of torts, respectively, whereas chapter 3, as a starting point, deals only with the auditor’s responsibility in relation to going concern according to auditing law. On the other hand, the similarity between these chapters is related to the fact that both chapters are primarily based on the relevant regulation. Thus, the difference be- tween chapter 2 and 3 as well as chapter 4 is related to the fact that chapter 2 and 3 are primarily based on the relevant regulation, whereas chapter 4 is primarily based on the relevant legal practice. In chapter 4, different methodical considerations are first accounted for. Next, the decisions and judg- ments that exist about the management’s and/or the auditor’s responsibility in relation to going con- cern according to accounting and auditing law, respectively, are analysed. Finally, this chapter and hence the analysis of these decisions and judgments is summarised. The decisions and judgments that are analysed comprise expert opinions in the form of expert opinions from the Opinion Committee (Responsumudvalget) of the Danish Association of State Authorised Public Accountants (FSR) and the Danish Association of Registered Public Accountants (FRR), respec- tively, disciplinary decisions in the form of disciplinary rulings etc. from the Auditor Tribunal (Revi- sornævnet) (previously the Disciplinary Tribunal for State Authorised and Registered Public Account- ants – Disciplinærnævnet for Statsautoriserede og Registrerede Revisorer), the former Disciplinary Tri- bunal for State Authorised Public Accountants (Disciplinærnævnet for Statsautoriserede Revisorer), the former Disciplinary Tribunal for Registered Public Accountants (Disciplinærnævnet for Registrerede Revisorer) and the former Auditor Tribunal (the ”old” Auditor Tribunal), respectively, as well as court judgments in the form of civil liability judgments, among other things. The court judgments that are analysed deal with both the management’s and the auditor’s responsibility according to accounting and auditing law, respectively. Some of these judgments deal with the man- agement’s responsibility in relation to going concern according to accounting law, whereas others deal with the auditor’s responsibility in this area according to auditing law. Some of the judgments deal with only the management’s or the auditor’s responsibility in relation to going concern according to account- ing and auditing law, respectively, whereas others deal with both the management’s and the auditor’s responsibility in this area according to accounting and auditing law, respectively. The expert opinions that are analysed deal primarily with the auditor’s responsibility in relation to going concern according to auditing law but often also touch on the management’s responsibility in this area according to accounting law. This is due to the fact that expert opinions deal not only with good audi- 700
    • Summary tor practice, including good audit practice, which is, naturally, related only to the auditor, but also with good accounting practice, which is related not only to the auditor but also to the management. On the other hand, the disciplinary decisions that are analysed deal, naturally, only with the auditor’s responsibility in relation to going concern according to auditing law and not with the management’s responsibility in this area according to accounting law. This is due to the fact that it, as mentioned, makes no sense to talk about the management’s responsibility according to disciplinary law – neither generally nor in relation to going concern As mentioned, the management’s assessment of going concern can be divided into a number of impor- tant elements, just like the auditor’s assessment of and reporting about going concern in the auditor’s report, respectively, can be divided into a number of important elements. Some of the decisions and judgments that are analysed are directly related to these important elements. As mentioned, chapter 5 contains the conclusion. The purpose of this chapter is partly to conclude on the analyses of the management’s and the auditor’s responsibility in relation to going concern in chapter 2-4 by answering the working questions that are related to each of these chapters, partly to build on theses analyses by answering the two overall research questions. 701