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Archives of Business Research – Vol. 9, No. 9
Publication Date: September 25, 2021
DOI:10.14738/abr.99.10797. Gulo, W., & Setyawati, D. M. (2021). The Effect of Financial Distress, Company Size, and Previous Year’s Audit Opinion on Going
Concern Audit Opinion of Textile and Garment Sub Sector Companies. Archives of Business Research, 9(9). 55-68.
Services for Science and Education – United Kingdom
The Effect of Financial Distress, Company Size, and Previous
Year’s Audit Opinion on Going Concern Audit Opinion of Textile
and Garment Sub Sector Companies
Wininatalia Gulo
Accounting Department, Gunadarma University, Jakarta, Indonesia
Dyah Mieta Setyawati
Accounting Department, Gunadarma University, Jakarta, Indonesia
ABSTRACT
Going concern audit opinion is an audit opinion that given by the auditors when
they have doubts about the company's ability to sustain its business. The purpose
of this study is to determine the influence of financial distress, company size, and
the previous year’s audit opinion on going concern audit opinion. The data used is
secondary data of textile and garment sub-sector companies listed on the Indonesia
Stock Exchange. The sampling method used was purposive sampling method. The
samples used were 15 companies in the textile and garment sub-sector with the
2016-2019 research period. The analysis technique used was the modified Altman
method and logistic regression analysis with the help of SPSS version 26. The results
of the analysis show that financial distress and the previous year's audit opinion
have an effect on going-concern audit opinion. Meanwhile, company size has no
effect on going concern audit opinion. And the overall results show that financial
distress, company size, and previous year's affect on going concern audit opinion.
Keywords: Financial Distress, Company Size, Previous Year’s Audit Opinion, Going
Concern Audit Opinion
INTRODUCTION
In recent years, Indonesia has shown a positive progress in economic growth in the industrial
sector. This also shows that the development of the business world in Indonesia has
consistently progressed from year to year since the monetary crisis in 1997. One of the main
commodities driving Indonesia's economy in recent years comes from the manufacturing
industry. The manufacturing industry itself consists of 3 sectors, namely: the basic industrial
sector and chemicals, various industrial sectors, and the goods and consumption industry
sector. The various industrial sectors consist of several sub-sectors, one of which is the textile
and garment sub-sector.
The textile and garment sub-sector is a large-scale industrial sector that focuses on the
manufacture of clothing. The textile and garment sub-sector is a large-scale industrial sector
that focuses on the manufacture of clothing. Reporting from the website of the Ministry of
Industry of the Republic of Indonesia (kemenperin.go.id), this sector is the 3rd largest
contributor to foreign exchange in Indonesia after the palm oil industry and the tourism sector.
As one of the labor-intensive sectors, this sector is considered to be able to boost the country's
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Archives of Business Research (ABR) Vol. 9, Issue 9, September-2021
Services for Science and Education – United Kingdom
economy in facing industry 4.0. The government itself is trying to reform the textile and
garment sub-sector because it is considered that in recent years it has weak competitiveness.
The textile and garment sector tends to have a weak financial condition, seen from the number
of companies that do not experience consistent profit increases. Therefore, it is likely that many
companies in this sector will get a going concern audit opinion.
The going concern of a business entity is very important for both company management and
investors. This is an assessment factor for investors to see the company's ability to maintain its
business before investing in the company concerned. These investors will usually see the
company's performance by analyzing and evaluating the company's financial statements before
deciding to invest. In presenting this financial report, an independent third party is needed
whose role is to bridge the main interests between the company and the investor, in this case
an expert, namely an auditor or public accountant. There are several things that become the
basis for an auditor before giving a going concern audit opinion. As for the main element of
auditors in assuming the ability of a company to maintain its business continuity is the
company's bad financial ratio (SPAP, 2011). This condition is usually triggered by financial
distress at the company. According to Hofer (1980:20) quoted by Lestari and Prayogi (2017)
states that financial distress is a condition in which a company experiences negative net profit
for several years, which is an indication that the company is leading to bankruptcy. Auditors
usually tend to provide a going concern audit opinion when they see that the company is
experiencing a higher probability of bankruptcy. This will continue until the financial condition
and performance of the company are better than the previous years and have a positive impact
on the company's survival (Listantri and Mudjiyanti, 2016). Apart from financial distress, the
size of the company is also considered to be a determining factor for a company to accept going
concern audit opinion. The size of the company itself can be shown in various ways, such as
from the total asset value, sales, market capitalization, the number of workers, and so on.
According to Alichia (2013), company size has a significant effect on going-concern audit
opinion. The previous year's audit opinion is also one of the main factors for an auditor in
providing a going concern audit opinion. According to Wibisono (2013) and Fahmi (2015), the
previous year's audit opinion has a significant effect on going concern audit opinion. It is
probable that a business entity will receive a going concern audit opinion again if in the
previous year it also received a going concern audit opinion. This is based on the decline in the
level of confidence of investors and creditors in the company's ability to sustain its business.
LITERATURE REVIEW AND HYPOTHESES
Going Concern Audit Opinion
Going concern or business continuity is a condition that guarantees the company in the future
can continue to operate and maintain itself as a business entity. Going concern problems are
divided into two, namely financial problems which include liquidity deficiency, equity
deficiency, debt arrears, difficulty obtaining funds, and operational problems which include
continuous operating losses, dubious income prospects, threatened operating capabilities and
weak control. over operations (Altman McGough, 1974 in Kristiana, 2012). In auditing, an
auditor has the responsibility to submit an assessment of the company's ability to sustain its
business. Going concern audit opinion is a modified audit opinion that given by the auditor if
he has doubts about the ability of the company's going concern to carry out its activities within
an appropriate period, not more than one year from the date of the audited financial report. An