Gavin Hinks

The previous problem was that auditors were too afraid to issue going concern statements because the statement itself could trigger the collapse of the company.

And who would want to be responsible for that if someone could claim later that there was a viable rescue option if only the auditors had held off on the statement.

Now, however, the outlook is different. As the crisis deepens there are warnings to look out for more going concern statements as auditors stick hard to the rules and take fewer risks up front. At least they can say they warned everyone.

Of course, that’s the criticism of auditors in relation to the critical problems faced by UK banks ­ that they didn’t wave the red flag early enough.

Looking at the current warnings, it’s not implausible to argue that sensitivity over banks has spilled over into auditors working in the broader economy pushing them into thinking they must issue the going concern statements.

The difficulty is that the old problem still persists. Going concern statements still run the risk of bringing about the end of things for a business.

Oddly though, despite everyone being strapped for cash, it’s possible to discern a stigma developing against calling time on a business ­ especially by a bank.

Ironically it was only this week that the Financial Reporting Council consultation on directors’ going concern statements was closed.

It had launched a review ostensibly to consider whether changes were needed given the current climate.
The FRC was probably never more right in that.

Gavin Hinks is editor of Accountancy Age