Introduction

Arguably, solvency has become more crucial in the audit process over the last decade. When auditing large corporate groups, it was suggested that solvency assessments were ‘mission impossible’ because of the complexity of company structure and financial transaction, the creative accounting, and consolidated financial statement. A deliberation on matters of entities’ going concern is required.

Significance of solvency assessments

Solvency entails having the capacity to meet ‘debts’ as they fall due (Clarke and Dean 2007). Australia’s Corporations Act 2001(Cth) requires that directors assess continually whether their company is solvent before allowing it to continue trading. When preparing the annual report, directors were imposed the obligations to consider some financial indicators and gain insights regarding companies’ capacities meeting the creditors’ claims. It is important for directors’ fully understanding the concept of insolvency to regulate and operate companies in order, and then the ultimate financial data may properly disclose to shareholders.

According to ASA200.42, auditors have the responsibilities of ‘forming and expressing an opinion on the financial report’. In order to help investors making correct judgments based on financial statement, auditors need to assess whether the going concern assumption is satisfied in audit process. They also have the duty of care to attest continually the client companies’ solvency status.

Solvency conclusions

For Bond Corporation (BC) case, corporate complexity is the first difficulty for audit. Such enormous organizational structure—with over 600 subsidiaries and many registered overseas, mislead the opinion on solvency assessment. Moreover, Bond Corporation insisted on non-stopping expansion by acquisition, and suffered liquidity problems of significant outstanding debts from the