Author Archives: Kenneth (KC) Chan

SAS59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, requires the auditor to include a separate paragraph in the audit report if the auditor discovers questionable validity of the entity’s going concern assumption.

What does this mean?  Should the auditor raise questions about an entity’s future and ability to continue its business, the auditor must say so in the audit report.  This opinion would help point out potential issues about the entity to investors and other financial users of the report.

However, it seems the auditors are hesitant to include this opinion even if they suspect something wrong.  One reason is that this negative opinion would make it even harder for a struggling entity to obtain new loans.  Another reason is the fear of losing the client along with its auditing fees.  Management can easily shop for a new auditor to get better opinions.  The last reason is the lack of specifics that define SAS59.  It is not clearly defined under GAAP.

I believe that auditors know what to look out for, but remain hesitant due to the first two reasons.  They can possibly send the entity into quicker bankruptcy with a negative opinion.  In addition, the auditors may be under direct orders from their own management to not be as tough as needed.  If possible, reporting conservatively is better than pointing out a negative and not giving the entity a chance to dig itself out of the hole.  This really makes it tough for auditors to perform their duties.