Discussion:Going Concern
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| + | {{ForumReplyPost|UserID=Natalie|Date=October 20, 2009|Text=Thanks Roy. That's nice to hear every now and then. | ||
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| + | BTW, I see your key board is acting up again.}} | ||
Revision as of 20:54, 20 October 2009
Discussion Forum Index --> Accounting Questions --> Going Concern
| 13 October 2009 | |
| Our firm has a client for which we issue a compilation report on the tax basis, no disclosures. The client has been involved in an EPA clean-up that has racked up millions of dollars in legal and clean-up expenses. Most recently, the EPA sent the client a judgment for over $5 million dollars.
Liabilities far exceed assets and there is a multi-million dollar loss this year. The closely held company has been kept afloat with large loans from the two shareholders who are related to one another. We are trying to determine what, if anything, needs to be disclosed regarding going concern. For example, if the shareholders are willing to infuse more cash into the company, does this negate the need for going concern disclosure? SSARS No. 1 says that "an accountant should not include an emphasis paragraph in a compilation report on f/s that omit substantially all disclosures unless the matter is disclosed in the financial statements." Does this mean that we need a selected footnote on going concern? Thank you for your help! | |
| October 14, 2009 | |
| I would tend to be a little conservative in a situation like this and yes, have one selected note that describes the issue with the going concern. | |
| 14 October 2009 | |
| For non-disclosure compilation you generally would not have any requirement on going concern. Accountant's reports are not supposed to introduce any new information but adding going concern would do that. We have had a similar issue (this year) and consulted our top national partner and he indicated that you do not add anything to the report when it is non disclosure financial statements. He has been on many AICPA, FASB, SEC type boards and I've never run into an issue that he wasn't spot on with. Though I would echo the "be conservative" advice. Perhaps you should recommend full disclosure financials or possibly partial disclosure with going concern language in the disclosure. | |
| 15 October 2009 | |
| UTdave1- Great information! So in your similar situation, did you issue a "normal" report and not mention going concern issues? Or did you take a conservative approach and have a select footnote on going concern with a report paragraph addressing going concern? | |
RoyDaleOne (talk|edits) said: | 16 October 2009 |
| Also, is not a going concern issue included after a review of the feasibility of management's actions concerning the going concern issue? | |
| 16 October 2009 | |
| We issued the normal nondisclosure compilation report on financials that did not contain footnotes. If there were any notes we may have had a different conclusion. | |
| October 17, 2009 | |
| Roy, I think it's true with many disclosures that one needs to determine whether they're reasonable or not.
I did a compilation similar to this one. The client received a foreclosure notice regarding one of its main assets. I did include a going concern note to the statements and modified my report accordingly because I wanted to make sure that readers understood the entity might not be around a year later. | |
RoyDaleOne (talk|edits) said: | 18 October 2009 |
| I suggest a failure to disclosure any material item know to the "cpa" that might influence the reader of a financial statement is required regardless of the level of reporting. Right is right.
When the opposing attorney asks you why you did not. What are you going to say? | |
| 19 October 2009 | |
| I would suggest you read interpretation 29 on AR section 100. http://www.aicpa.org/download/members/div/auditstd/AR-00100_9.pdf
I originally wanted to add modification to the report but if you read guidance it states that you are prohibited from including in your report an emphasis of a matter not disclosed in the financial statements (paragraph 55 AR 100)(except the basis of accounting if not GAAP). Additionally, interpretation 29 has the emphasis of a matter referring to a footnote for going concern. So then how do you add an emphasis of a matter when that matter is not in the financials? Going concern language would fall in a footnote and you have already stated that the footnotes are omitted and that the financials are not intended for those not informed of such matters. My situation was just an interim compilation where we had issued a review with a going concern emphasis and the third party in our situation had already received that report. If you are truly worried about the implications to third parties then refuse to issue a non-disclosure compilation when going concern issues exist. That way the full picture is laid out with a complete disclosure. AR Section 100 paragraph 72 is pretty clear on the matter: .72 The accountant may emphasize an uncertainty about an entity's ability to continue as a going concern provided the uncertainty is disclosed in the financial statements. In such circumstances, the accountant should follow the guidance in paragraphs .54–.55. [Paragraph added, effective for compilations and reviews of financial statements for periods ending after December 15, 2008, by SSARS No. 17.] This does get into the scenario of if the financials would be misleading if you didn't have that disclosure. If you think so then you would have to require the disclosure or not issue a report. This is obviously a scenario where you should be careful with your conclusions and have excellent conclusions. I generally don't think that non-disclosure financials are a good idea for third party use - especially when there would be disclosures about significant uncertainties. | |
| 19 October 2009 | |
| original poster. When I looked back at it yesterday I decided that my original post didn't really address the underlying question which I felt was more related to whether the financials would be misleading and whether additional action was needed as opposed to what are the specific requirements on the report when there is going concern issues on a non-disclosure compilation. | |
RoyDaleOne (talk|edits) said: | 19 October 2009 |
| Following "Peer" guidelines is the minimum level of professional standards to a court, I suggest you do what is right.
Have we not learned anything? | |
| 20 October 2009 | |
| Roy, do you deal with a lot of financial statements? Financial statements are the representation of management, not the independent CPA. An accountant's report on a compiled financial statement with notes omitted has a paragraph stating very clearly that the notes are omitted and this report is not intended for use by those not informed of such information. If the readers of the financial statements are already quite aware of the additional information full disclosure notes would provide, then all you are doing is racking up accounting fees for your client by doing what you imply is the "right" thing. This is not black and white...most attest work isn't. I think Dave explained the situation very well. Thanks, Dave. This is a question I had not encountered, but was curious about. Now I don't have to research it. YAY! | |
| October 20, 2009 | |
| Captain, a compilation is actually not attest work. If a selected note is not put in about a going concern, what is the CPA going to say when a problem comes up and there's a lawsuit -- these statements are meant for people who understand them? I think it's better to be conservative and include one note to the statements that basically says there's a going concern issue. I am not aware of any rule that says that is not allowed. | |
| 20 October 2009 | |
| The litigation issue is a very valid point. I have read that there is far more litigation over compilations and reviews than there is with audits. This is generally due to the expectation gap and I expect also because there are likely more compilations and reviews than audits. This also gets to a big problem with compilations - especially non-disclosure compilations - in that they really are generally intended for management and insiders and really are not appropriate for third parties because so much information is left off. Currently, I only have one client that we do these for and they are monthly and basically serve as a supplement to the annual reviewed financials. However, in my local firm days I issued tons of non-disclosure compilations and clients would give them to lenders and in some instances to people that they were hoping to sell their business to. I didn't think much of it then but I think that does put the CPA in a potentially risky position given our litigous society and the expectation gap. I personally don't believe that non-disclosure compiled financials are worth much as stand alone statements.
Natalie and Roy - (I'm not trying to be antagonizing here - I'm just interested in your opinions) Where would you draw the line on your limited notes or modified report? What if the client has a significant operating lease that, if booked as a liability, would significantly alter their debt / equity position? Should you include a note regarding that in non-disclosure compiled FS? Or a significant revenue concentration? These questions make me wonder if issuing non-disclosure compilations that aren't restricted for management use only should potentially be discountinued. | |
| October 20, 2009 | |
| My nonprofit clients often ask me for non-disclosure statements -- they are cheaper. Sometimes annual statements are full disclosure. Hawaii has the most nonprofits per capita, and most of them have few funds available for this type of expense. I think it is very common here to have non-disclosure statements.
As far as your question about where to draw the line, I can't say. That would need to be taken on a case-by-case basis. Perhaps if I knew the statements were going to a bank for a new loan and I knew some commitment would be important for the banker to know about, I might include it. I can see how providing selected notes might cause problems, too, however. Why is one note chosen for disclosure and not another? It all has to be weighed with the current facts and circumstances. I think I should clarify something. The modification to the report only states that a selected note is included with the statements. There is no going concern emphasis paragraph as there is with an audit. | |
RoyDaleOne (talk|edits) said: | 20 October 2009 |
| I have been "signing" audit reports since 1974. Consider one had to be a partner in the firm to have the authority to append the "firm name" on a report. For what that worth.
Think Enron, 1136 Tenants, McKesson Robbins, and on and on. Natalie know hers stuff IMHO. | |
| October 20, 2009 | |
| Thanks Roy. That's nice to hear every now and then.
BTW, I see your key board is acting up again. | |
