Review Journal "THE INFLUENCE OF PREVIOUS AUDIT OPINION GOING CONCERN, AUDIT QUALITY AND COMPANY’S FACTORS TO AUDIT OPINION GOING CONCERN"

Title	THE INFLUENCE OF PREVIOUS AUDIT OPINION GOING CONCERN, AUDIT QUALITY AND COMPANY’S FACTORS TO AUDIT OPINION GOING CONCERN
Author	DWI CAHYONO
Year	2007

Introduction

Hyperinflation is poorly understood. As its name might imply, most people believe hyperinflation is merely very high inflation. Inflation can and does occur in a perfectly healthy economy. In fact, since 1913 when the Fed was founded inflation in the USA has consistently risen at 3.5% per year on average.3 One might assume that this means the country has experienced some great injustice, but the truth is that the 1900's were characterized by the greatest economic expansion and wealth creation the world has ever seen.

A Historical Review

A review of the modern economic cases of hyperinflation show striking similarities. Most notably, they involved war (the losing end of a war), regime change, rampant corruption or foreign denominated debt. All resulted in catastrophic hyperinflations. It’s important to note the cause and effect here. These hyperinflations were not merely monetary events. It was not just “high inflation” or excessive government spending. It was a full blown rejection of the sovereign currency.

The Case of Weimar

The Weimar Republic is the most notable hyperinflation. But it was not the only case of hyperinflation that occurred in Europe at the time. In fact, several European nations were ravaged by the war.

The Case of Zimbabwe

This is another extraordinary circumstance. To call these events “rare” and “severe” is a vast understatement. Zimbabwe is an utter economic catastrophe. GDP has declined 40% since 2000, unemployment has risen as high as 95% and hyperinflation has ravaged the country. In essence, Zimbabwe has proven a highly inefficient and corrupt nation for several decades.

The Cause & Effect

1.      A ceding of monetary sovereignty (usually in the form of foreign denominated debt, a currency peg, etc).

2.       Extraordinarily unusual social circumstances (war, regime change, etc.).

3.      Very low levels of faith in government during regime change (high public mistrust).

4.      Ineffective government response or rampant corruption.

5.       Combustible political environment.

6.       A collapse in the domestic economy.

Conclusion

Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency. While government debts and deficit spending can exacerbate a hyperinflation they have not generally been the cause of hyperinflation, but rather the result of severe and unusual exogenous events. The excessive and incompetent monetary response is generally the result of severe exogenous forces at work such as war, regime change, corruption, or a ceding of monetary sovereignty.