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Advances in Social Sciences Research Journal – Vol. 9, No. 5

Publication Date: May 25, 2022

DOI:10.14738/assrj.95.11973. Hidayat, A. H., & Setiyawati, H. (2022). Impact of Pandemic Financial Crisis to the Going Concern Audit Opinion Factors. Advances

in Social Sciences Research Journal, 9(5). 147-158.

Services for Science and Education – United Kingdom

Impact of Pandemic Financial Crisis to the Going Concern Audit

Opinion Factors

Ahmad Hafid Hidayat

Department of Accounting, Mercu Buana University, Indonesia

Hari Setiyawati

Department of Accounting, Mercu Buana University, Indonesia

ABSTRACT

This study aims to further analyze the relationship between the characteristics,

client relationship characteristics and environmental factors of auditors in issuing

going concern audit opinions during pandemic financial crisis. By analyzing the

effect of audit client tenure, litigation risk, and audit firm size on going-concern

audit opinion and financial crisis due to COVID-19 as moderation. This study uses

secondary data, financial statements and independent auditor reports of mining

companies listed on the Indonesia Stock Exchange in period 2017-2020. The

analytical method used is logistic regression. The results showed that the audit

client tenure of public accountants and audit firm size had a significant negative

effect on the issuance of going-concern audit opinions, while litigation risk had a

significant positive effect on the issuance of going-concern audit opinions. Then the

financial crisis due to Covid-19 had a significant positive effect on going-concern

audit opinion but did not moderate the effect of audit client tenure, litigation risk,

and audit firm size on going-concern audit opinion.

Keywords: audit client tenure, litigation risk, audit firm size, going concern audit opinion,

and financial crisis

INTRODUCTION

When a financial crisis occurs, the auditor's assessment regarding the issue of the company's

going concern becomes the attention of stakeholders. This is due to the financial crisis that has

direct impact on the survival of the company in various industry as well as the rate of return on

investment funds and stakeholder loans. During the Covid-19 pandemic, Indonesia has

experienced an economic recession after Indonesia's Gross Domestic Bruto (GDB) in the second

and third quarters of 2020 was minus 5.32 percent (Badan Pusat Statistik, 2020a) and 3.49

persen (Badan Pusat Statistik, 2020b) YoY (year on year). This has resulted in many companies

in various sectors experiencing financial difficulties. Based on a study by the Institute for

Energy Economics and Financial Analysis (IEEFA), the Covid pandemic threatens the financial

resilience of 6 of the 11 coal industry companies on the Indonesia Stock Exchange (IDX). The

realization of investment in the mineral and coal mining sector also only reached 37.3% of the

target of US$ 7.75 billion in the 2020 Mining Work Plan and Budget or RKAB. It is not known

when the financial crisis will end (Beams dan Yan 2015), this will result in significant

uncertainty in the business environment.

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Advances in Social Sciences Research Journal (ASSRJ) Vol. 9, Issue 5, May-2022

Services for Science and Education – United Kingdom

Further impact from going concern issue was also stated on exchange regulations point I-I,

stipulates that the stock exchange may delete the listing of an issuer's shares on the IDX when

the issuer experiences an event that has a significant negative impact on business continuity or

the continuity of its status as an issuer. Reported from CNBC Indonesia, there were 3 forced

delisting mining companies in the 2017-2020 period, including: PT Borneo Lumbung Energi &

Metal Tbk (BORN) delisted on 20 January 2020, PT Bara Jaya Internasional Tbk (ATPK) on 30

September 2019, and PT Sigmagold Inti Perkasa Tbk. (TMPI) caused by could not provide

prospects for its business continuity. Stakeholders began to question the role of auditors when

many companies and banks went bankrupt after obtaining a fair opinion (Sanoran 2018). So,

auditor should adjust their audit method to address this issue for rising the audit quality during

financial crisis.

Based on Statement of Auditing Standards (SAS) No. 59 and Auditing Standard (SA) 570, the

auditor has the responsibility to assess the client company's ability to maintain its business

continuity for a reasonable period of time (AICPA 2012; IAPI 2013; Zarei et al. 2020; Apollo

2020). However, decreasing level of stakeholder trust on auditor's independent report is still a

significant matter. This is the impact of the company's scandals concerning the auditor's ability

to detect and disclose window dressing by the company, so that the auditor's opinion does not

reflect the fairness of the company's financial statements (Sultanoglu et al. 2017). Because the

auditor has legal liability for the assurance services provided in accordance with applicable

audit standards (Lessambo 2018), auditors must use professional judgment in providing a

going concern audit opinion. The evaluation is based on the auditor's characteristics, client

relationship characteristics and environmental factors of auditors.

Audit client tenure is the number of continuous years the incumbent auditor has been with the

client (Jackson et al. 2008). To increase public trust regarding auditor independence, regulators

and professional organizations issued several regulations regarding client tenure audits, such

as: European Union (EU) Regulation No. 537/2014 for 10 years, and The Sarbanes-Oxley Act

(SOX) section 207, 17/PMK.01/2008, and POJK No. 13/POJK.03/2017. Legal risk arises when

engaged the responsibility between auditors and two key parties: the client and third-party

users (Louwers et al. 2018). When the auditor fails to carry out the audit task, the auditor can

be held liable for the loss of using legally misleading information (Messier et al. 2017). Litigation

risk or legal liability if it is not controlled properly by the auditor will cause losses and decline

in professional reputation (Whittington and Pany 2016). Meanwhile, audit firm size is

associated with the reputation and audit quality of the Public Accounting Firm (Tagesson and

Öhman 2015). The issue related to audit firm size is how audit firms build and maintain their

audit quality from failures that can damage their reputation, in this case related to going

concern issues of client companies.

This study further analyzes the relationship between the characteristics, client relationship

characteristics and environmental factors auditors by giving a going concern audit opinion to

address the extraordinary contition (financial crisis, etc.). There are two motivations in this

research. First, it explores the potential for auditor differences of opinion that are influenced

by auditor characteristics, auditor environmental conditions, and the client-auditor

relationship. Giving the type of opinion is the auditor's professional judgment, each auditor has

its own audit tools or procedures in reducing audit risk. Auditors do not have absolute tools to

measure the company's future capabilities. Second, is to understand whether relationship was