What should you do if it seems like there is a going concern issue on a review or compilation?
SSARS 19 discusses how to handle the situation when something comes to the accountant’s attention that there is some uncertainty about the organization’s ability to continue as a going concern for a reasonable period of time.
Wow, how’s that for a sentence that begs for some definition?
First, when performing a compilation or review, you don’t have to go out of your way to look at the going concern issue. The SSARS phrases the going concern issue in the context of something comes to your attention. Don’t complete your compilation or review with your eyes closed though. An astute CPA would realize that in this lousy economy it might be smart to step back and ask if this client is going to be around a while.
Second, what is a reasonable period of time? The SSARS literature says that is 365 days after the date of the financial statements. So the question becomes whether the client is going to make it to the next balance sheet date.
A long time ago, the way CPAs and their clients sometimes dealt with the going concern issue was to just let the financial statements age. If the review was performed a number of months after year-end and it took a month or two of back and forth talking about what the accountant’s report would look like, everyone might decide to just let the report sit until 10 or 11 months after the balance sheet date. The rationalization used to be “well, they can certainly make it another one or two months”. I don’t think that approach is going to cut it anymore. Probably shouldn’t have ever been done that way, but that was way back when.
So if you’re going to be issuing the financial statements more than a couple of months after the end of the fiscal year, it might be wise to ask what a reasonable time is. If the report is ready for release six or eight months after the end of the year, it might be prudent to look further than just another 4 to 6 months into the future.
Next post – how to respond if a going concern issue does come to your attention during a compilation or review.