Discussion:Going Concern
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| + | {{ForumReplyPost|UserID=Captcook|Date=20 October 2009|Text=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!}} | ||
Revision as of 06:05, 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! | |
