New going concern warnings appear to be reaching a 12-year low among companies, according to new research from Audit Analytics, but the number of companies improving well enough to shed their going concern status is also the lowest observed in the past 12 years.
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The report on 2011 going concerns provided a 12-year review of trends among companies. “New going concerns (filed for the year, but not the prior year) appear to be trending to an amount that will be the lowest during the 12 years under review,” said Audit Analytics director of research Don Whalen. “New going concerns recently peaked at 1,177 for fiscal year 2007 and decreased in number each year thereafter to an estimated low of 545 new going concerns in 2011.”
The report noted that fiscal year 2010 saw the fewest number of companies that improved well enough to shed their going concern status. “A multi-year analysis of the going concerns allows for an identification of companies that filed a going concern one year but not the following year,” Whalen pointed out. He noted that the cessation can occur for one of two reasons: either the company files a subsequent clean audit opinion (subsequent improvement), or the company stopped filing audit opinions altogether (subsequent disappearance).
“A review of companies that experienced a subsequent improvement reveals that only 198 companies that filed a going concern in 2010 were able to file a clean audit opinion in 2011,” he added. “This figure represents the lowest for any year analyzed, since 2000. The period from fiscal year 2007 into 2008 was comparable, with only 200 improving companies, but every other year under review showed a much better population of improving companies: from 250 to 373 companies. “
The report also estimated that 17.7 percent of the auditor opinions filed for fiscal year-end 2011 will contain a qualification regarding the company’s ability to continue as a going concern. During the 12 years under review, the highest percentage, 21.1 percent, occurred in 2008 and the lowest, 14.2 percent, occurred in 2000.
The last five years represent the worst five percentages under review. Fiscal year-end 2008 received 3,347 going concerns, the highest number during the 12 years, followed by 3,095 going concerns for 2009 and 2,926 for 2010. Year-end 2011 is estimated to receive 2,658 going concerns, a decrease of 268 from the prior year, Whalen noted.
However, while the total number of going concerns in fiscal year 2011 is expected to be less than the prior year’s, much of the decrease is due to company attrition from the prior year’s going concern population.