September 30 UPDATE 1-FASB weighs 'going concern' self-test for US firms (Reuters)

September 30, 2011

WARNINGS CAN BE DEATH KNELL

Auditors are reluctant to issue a warning that can amount to a death knell for some companies, causing investors to flee and credit to dry up, accounting experts said.

Audit fees can also be at stake.

Even if a company survives, an auditor is two to three times more likely to lose a client receiving a going concern warning than a similarly distressed company that did not get one, according to Marshall Geiger, an accounting professor at the University of Richmond.

FASB's proposal would make the going concern process more complicated, Geiger said.

"I do think there's going to be this friction now between what management says and what the auditor says," he said. If an auditor issues a going concern warning that is contrary to the company's opinion, "I'm not sure how that is going to be resolved," he said.

Managers would be hesitant to publish a going concern warning that could be a self-fulfilling prophesy, he said.

"It makes it pretty difficult on management to come to the plate, particularly at a difficult time in the company's life, and say publicly, 'We're not sure if we're going to be around next year,'" Geiger said.

full Reuters article.