COVID-19 government grants, liquidity indicators and going concern uncertainty

Abstract

The purpose of this study is to enhance our understanding of the effect of the liquidity position on going concern reporting during the COVID-19 liquidity crisis. The first possible effects of COVID-19 as they occur in 2020 are enclosed in the financial statements of 2019 as an event after the balance sheet date. By studying a sample of 579 financial statements of private (non-listed) companies that are subject to a statutory audit in the Netherlands, we find that both liquidity indicators and government grant applications result in a higher propensity to issue a mandatory going concern paragraph in the financial statements. Additionally, we find no evidence that liquidity levels prior to the COVID-19 pandemic crisis affect an application for a government grant.