The Importance of Audit Opinion in Commercial Banking

Oct 13, 2025 by windailys.com 79 views

The Influence of Proxi Going Concern and the Previous Year's Audit Opinion on the Current Year's Audit Opinion on Commercial Banks that Go Public in Indonesia

Introduction

In the banking world, especially for commercial banks registered in the Indonesian stock market, audit opinion has a significant impact on investor perceptions and company stability. The audit opinion is a crucial document that provides an independent assessment of a company's financial statements, and it plays a vital role in shaping investor decisions. This study aims to investigate the relationship between Going Concern proxy and the previous year's audit opinion on the current year's audit opinion of commercial banks that go public in Indonesia. By using a sample of 17 banking companies listed on the Indonesia Stock Exchange from 2005 to 2007, this study analyzed the factors that influence the Going Concern opinion.

The Importance of Audit Opinion in Commercial Banking

Audit opinion is a critical component of a company's financial reporting, and it has a significant impact on investor perceptions and company stability. A positive audit opinion indicates that a company's financial statements are presented fairly and in accordance with the applicable financial reporting framework. On the other hand, a negative audit opinion can have a devastating impact on a company's reputation and financial stability. In the banking sector, audit opinion is particularly important, as it provides an independent assessment of a bank's financial health and stability.

The Role of Going Concern Proxy in Audit Opinion

Going Concern proxy is a financial ratio that is used to assess a company's ability to continue as a going concern. The Going Concern proxy is calculated by dividing a company's total debt by its total equity. A high Going Concern proxy indicates that a company has a high level of debt relative to its equity, which can be a sign of financial distress. In this study, we used the Debt to Equity Ratio (DER) as a proxy for Going Concern.

The Impact of Previous Year's Audit Opinion on Current Year's Audit Opinion

The previous year's audit opinion is also an important factor that can influence the current year's audit opinion. A positive audit opinion in the previous year can indicate that a company has a good financial health and stability, which can increase the likelihood of a positive audit opinion in the current year. On the other hand, a negative audit opinion in the previous year can indicate that a company has financial difficulties, which can decrease the likelihood of a positive audit opinion in the current year.

Methodology

The research model used in this study is based on the measurement of several financial ratios that function as a proxy for Going Concern, namely Debt to Equity Ratio (DER), Quick Ratio (QR), Loan to Asset Ratio (Lar), and Long Term Debt to Assets Ratio (Ltdar). In addition, the previous year's audit opinion was also considered an important factor that might affect the current year's audit opinion. We used logistic regression to test the proposed hypothesis.

Research Result

The results of the analysis showed that the debt to equity ratio and the previous year's audit opinion had a significant influence on the going concern opinion. That is, the higher the ratio of debt to equity, as well as positive audit opinion in the previous year, the more likely the bank will get a positive going concern opinion in the current year. However, the Quick Ratio, Loan to Asset Ratio, and Long Term Debt to Assets ratio showed a significant effect on the Going Concern opinion. This finding implies that investors and auditors pay more attention to the capital structure and audit reputation that have been given previously than the liquidity and asset structure measured by these ratios.

Analysis and Explanation

A good financial condition of the bank is reflected in the low debt to equity ratio, shows that the company has a smaller proportion of debt compared to its equity. This gives a positive signal to the auditor that the company is able to manage its debt well. On the other hand, the previous year's audit opinion also plays an important role, because auditors tend to pay more attention to companies that have received previous positive opinions, indicating that the company is considered feasible to operate.

Conclusion

Overall, this research provides significant insights on the effect of going concern proxy and the previous year's audit opinion on audit opinion received by commercial banks registered in Indonesia. The results of this study can be used as a reference for bank management to pay more attention to capital structure and maintain good relations with auditors, in order to increase the likelihood of getting positive going concern opinions in the future. Going forward, further research can be done by expanding the range of time and the number of samples to get more comprehensive results.

Recommendation

Based on the findings of this study, we recommend that bank management pay more attention to capital structure and maintain good relations with auditors. This can be achieved by:

Maintaining a low debt to equity ratio to indicate a good financial health and stability.
Ensuring that the previous year's audit opinion is positive to increase the likelihood of a positive audit opinion in the current year.
Providing transparent and accurate financial information to auditors to facilitate the audit process.
Building a good relationship with auditors to increase the likelihood of a positive audit opinion.

By following these recommendations, bank management can increase the likelihood of getting a positive going concern opinion, which can have a positive impact on investor perceptions and company stability.
Frequently Asked Questions (FAQs) on the Influence of Proxi Going Concern and the Previous Year's Audit Opinion on the Current Year's Audit Opinion on Commercial Banks that Go Public in Indonesia

Q: What is the significance of audit opinion in commercial banking?

A: Audit opinion is a critical component of a company's financial reporting, and it has a significant impact on investor perceptions and company stability. A positive audit opinion indicates that a company's financial statements are presented fairly and in accordance with the applicable financial reporting framework.

Q: What is Going Concern proxy, and how is it used in this study?

A: Going Concern proxy is a financial ratio that is used to assess a company's ability to continue as a going concern. The Going Concern proxy is calculated by dividing a company's total debt by its total equity. A high Going Concern proxy indicates that a company has a high level of debt relative to its equity, which can be a sign of financial distress. In this study, we used the Debt to Equity Ratio (DER) as a proxy for Going Concern.

Q: How does the previous year's audit opinion affect the current year's audit opinion?

A: The previous year's audit opinion is an important factor that can influence the current year's audit opinion. A positive audit opinion in the previous year can indicate that a company has a good financial health and stability, which can increase the likelihood of a positive audit opinion in the current year.

Q: What are the key findings of this study?

A: The results of the analysis showed that the debt to equity ratio and the previous year's audit opinion had a significant influence on the going concern opinion. That is, the higher the ratio of debt to equity, as well as positive audit opinion in the previous year, the more likely the bank will get a positive going concern opinion in the current year.

Q: What are the implications of this study for bank management?

A: The findings of this study suggest that bank management should pay more attention to capital structure and maintain good relations with auditors. This can be achieved by maintaining a low debt to equity ratio, ensuring that the previous year's audit opinion is positive, providing transparent and accurate financial information to auditors, and building a good relationship with auditors.

Q: What are the limitations of this study?

A: This study has several limitations, including the use of a small sample size and the limited time period of the study. Future studies should aim to expand the sample size and the time period to get more comprehensive results.

Q: What are the future research directions based on this study?

A: Future research should aim to expand the sample size and the time period to get more comprehensive results. Additionally, future studies should investigate the impact of other factors, such as credit rating and market capitalization, on the going concern opinion.

Q: What are the practical implications of this study for investors and regulators?

A: The findings of this study suggest that investors and regulators should pay more attention to the capital structure and audit reputation of commercial banks. This can be achieved by requiring banks to disclose more information about their capital structure and audit reputation, and by conducting regular audits to ensure that banks are maintaining good financial health and stability.

Q: What are the policy implications of this study for the Indonesian government?

A: The findings of this study suggest that the Indonesian government should implement policies to promote good financial health and stability among commercial banks. This can be achieved by requiring banks to maintain a minimum level of capital adequacy, and by conducting regular audits to ensure that banks are complying with regulatory requirements.