Regulators Eye "Going Concern" Concerns - Auditing - CFO.com

Regulators Eye "Going Concern" Concerns - Auditing - CFO.com


Regulators Eye "Going Concern" Concerns
With the economic crisis deepening, auditors and their clients get testy with each other about companies' ability to survive.

Sarah Johnson - CFO.com US
April 6, 2009

Excerpts:

In the midst of an increase in the number of going-concern qualms stamped on company financials, standard-setters are working on changing how managers and auditors determine whether a business will stay viable in the foreseeable future.

It's the one area of financial reporting where auditors are required to play forecaster. Here, they must go beyond their more comfortable role of reviewer where they retrospectively look over a company's past financial performance.


What's more, the prediction portion of their jobs is getting harder. That's because the current downturn has poked holes in previously settled auditing assumptions and the capital structures of previously well-financed companies. "We all feel like we have to reprogram our crystal balls today because things are much different than they have been in the past," said Steven Rafferty, professional practices partner at audit firm BKD LLP, during a recent meeting of the Public Company Accounting Oversight Board's advisory group.

In the current economic environment, Rafferty lamented, auditors' evaluations of a company's ability to continue as a going concern — an already "extremely subjective" task — have become evermore difficult. Further, auditors will likely have to expand their current forecasts as the PCAOB works to align its existing standard with a new rule by the Financial Accounting Standards Board requiring companies to assess their going-concern status beyond a 12-month time frame.

Read full article: http://www.cfo.com/article.cfm/13436183

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This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.