Final answer:
The responsibility for evaluating the going concern assumption lies with management. The board of directors provides oversight, while the auditing firm reviews financial records and considers management's assessment of the going concern assumption. Corporate governance involves all these parties to ensure accurate financial reporting.
Step-by-step explanation:
Responsibility for evaluating the going concern assumption rests with management. It is the role of management to assess whether the entity will be able to continue as a going concern for a reasonable period of time, typically within one year of the reporting date. This evaluation is based on the applicable financial reporting framework, which may vary depending on the jurisdiction and standards in use, such as IFRS or GAAP.
The board of directors, elected by the shareholders, is the first line of corporate governance and oversight for top executives and plays a crucial role in overseeing management's activities. The second institution of corporate governance is the auditing firm hired to review the company's financial records and provide reasonable assurance that the financial statements are free of material misstatement, which includes evaluating the appropriateness of management's use of the going concern assumption. Lastly, outside investors, especially large shareholders like those who invest large mutual funds or pension funds, constitute a third institution of corporate governance, holding an interest in the financial information provided by the company. In the historical case of Lehman Brothers, corporate governance failed to provide investors with accurate financial information about the firm's operations, a scenario that underscores the importance of each party's role in corporate governance.