The disclosure of going concern information and the turnaround management

Abstract

The financial accounting system of the disclosure of going concern information has been introduced in Japan since the fiscal year after March 1st, 2003. The top management has to evaluate the notes of her/his company’s going concern. Moreover, she/he must explain its situation in the annotation of the annual security reports if any important questions arise in order to continue to exist her/his company. The auditor must audit its evaluation and notes of the top management. The objective of this paper is to clarify how the disclosure of going concern information based on a segregation of responsibility affects the turnaround or discipline of the management. As a result of my experimental analysis, it was proved that the disclosure of going concern information motivates many companies to promote turnarounds and contributes to improve the financial performance of the disclosed companies after three years have passed. Consequently, it’s contemplated that the disclosure of going concern information gives the management the chance to consider and practice countermeasures for its turnaround.