Planning engagements with going concern issues

By Larry L. Perry, CPA

Here are some practical questions accountants and auditors may wish to incorporate in the planning documentation of every audit and review engagement for the foreseeable future.

  • Does the accountant's or auditor's understanding of the client's business and industry reveal any information contrary to the going-concern assumption? Such information may include current and expected recurring operating losses, cash flow problems, defaults on debt obligations, inability to obtain financing or renewals of existing credit lines, an industry significantly affected by the recession, customers and vendors with going-concern problems, decreasing assets valuations, statutory noncompliance, and external matters such as lawsuits, loss of franchise, dealership or licenses, etc.
  • Does management have any concerns about the entity's ability to continue in business for at least a year or possibly longer?
  • What are management's plans to mitigate any revealed threat to continued existence?
  • Are management's plans realistic and are they capable of carrying them out?
  • What procedures will be necessary for the engagement team to evaluate management's plans to overcome going-concern problems?
  • What effects are the going-concern issues likely to have on the basis of preparation of the entity's financial statements?
  • What effects are the going-concern issues likely to have on the accountant's or auditor's report?

The FASB is still deliberating on its proposed statement, Going Concern, which was issued 10/9/08. The planning suggestions above will facilitate compliance with the final SFAS and with existing SAS No. 59. You can download a copy of the proposed statement from the Exposure Drafts section of the FASB Web site.

You may like these other stories...

Steve Jobs. Sergey Brin. Mark Zuckerberg. Each of these individuals, and their companies, are celebrated as changing the face of the technology. They all followed a similar path to success: excelling at one thing and...
Read more articles by Sally Glick here.While reading a recent article titled, "Bondage to Busyness," by Alan Morinis, I was struck by his reminder regarding how stressed and pressured we all are today. Our...
To assist firm leaders in making key decisions for the future, BKR International, one of the top 10 global accounting associations. recently put together a list of the five priorities managing partners must address...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.