Auditor's going‐concern modification decision in the post‐Enron era

Abstract

AbstractThe decision to modify a client's report for “going‐concern” reasons is one of the most difficult decisions an auditor faces. The American Institute of Certified Public Accountants' (AICPA) guidance, in SAS No. 59, requires the auditor to evaluate whether there is “substantial doubt about the entity's ability to continue as a going concern.” But although the term going concern is widely used in the profession, curiously it is not defined authoritatively in accounting standards.Many auditors also point out that the going‐concern modification fails to predict bankruptcy. And to further confuse matters, SAS 59 does not use the word bankruptcy anywhere in the text. The standard charges the auditor only with the responsibility to evaluate whether or not there is substantial doubt (another vague term) about the entity's ability to continue as a going concern for a period of one year beyond the date of the audit.So with all this uncertainty, what is the state of the going‐concern decision in today's post‐Enron era? © 2012 Wiley Periodicals, Inc.