In an article entitled “Address Going-Concern Issues as Early as Possible,” in Camico’s Impact Fall 2008 newsletter, the professional liability insurer offers the following advice: “Going-concern issues should be addressed as early as possible in an engagement.  ….  Delay makes the necessary conversations more difficult, may impair your objectivity, and usually exacerbates the problem.”

The article also points out that “U.S. GAAP reporting standards don’t differentiate between audits, reviews and compilations. The standards specify that if substantial doubt exists about an entity’s ability to continue as a going concern for a period not to exceed one year beyond the balance sheet date, than going-concern treatment is applicable.”

Although I can’t predict with certainty when this economic crisis will end, I can confidently predict that within the next six months a number of accounting firms will be named in lawsuits filed by disgruntled investors and creditors. That is why Camico, and, I am sure, the other professional liability insurers are writing articles like this and are offering advice to practitioners on how to protect their firms. They are also suggesting and urging that the insured call their insurers with any questions or if they want to discuss concerns that they might have.

Yes, we can expect many of the lawsuits to name the Big Four, but with the number of businesses in deep trouble and potentially going under, I expect many regional and smaller firms also to be sued. I also expect many firms to adopt and apply a more-sophisticated risk management analysis, not to just their audit engagements, but also to their compilation and review engagements.