Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Going concern issues in SSARS 19 – part two

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Previous post introduced the issue of what to do when something comes to an accountant’s attention during a review or compilation that there is some uncertainty whether the client will be around for a year after the balance sheet date.

What to do if you find yourself in that situation?  Here is a casual translation of the SSARS description:

SSARS 19 says the accountant should ask management to figure out the impact of that uncertainty on the financial statements and the disclosures.

When management comes back with an explanation of the impact of the uncertainty and what the impact would be on the financial statements and the disclosures, then the accountant evaluates the reasonableness of that information.

Unstated in the SSARS is what to do if the accountant concludes that management’s explanation of their ability to ride out the next year is reasonable or the financial statements are reasonable as first presented or as revised.  Seems to me the conclusion would be that the accountant can move forward by issuing a standard report.

On the other hand, SSARS 19 says if the accountant concludes management’s explanation of the impact on the financial statements and disclosures is inadequate, the accountant should move forward handling the situation as a departure from the applicable financial reporting framework.  That means there is a problem if management:

  • hasn’t successfully resolved what initially appeared to be going concern uncertainty, or
  • hasn’t revised the financial statements appropriately, or
  • hasn’t given sufficient disclosure in the notes. 

The accountant would need to handle that as a departure from accounting rules and handle the impact on the accountant’s report.  Disclosures for a departure from the applicable financial reporting framework would be needed. 

If modification of the report is not sufficient to describe the situation, it might be necessary to withdraw from engagement.

Another thing not explicitly mentioned in the SSARS is there would obviously be a dialogue in looking at the impact on the financials and disclosures.  Obviously management would get more than one shot at explaining why the uncertainty of going concern has been resolved and could try several times to develop appropriate disclosures if the going concern issue remains.

Written by Jim Ulvog

March 30, 2011, 7:39 am at 7:39 am

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