Basic disclaimer GOING CONCERN DOUBT
In 1988 a significant change occurred in the auditing standards with the imposition of a new requirement relating to the going concern assumption. The new standard was spelled out in Statement of Auditing Standards (SAS) Number 59 of the Auditing Practices Board. It required auditors, in every audit, to explicitly evaluate whether there is substantial doubt about a company's ability to continue as a going concern over the coming year. If the auditor has such doubt, he or she must state that opinion in the audit's report paragraph.
The previous standard did not require auditors to explicitly evaluate a company's ability to continue its operations as part of every audit. The new standard was developed in part to meet investors' concerns about having an early warning signal from auditors for companies in financial distress. Further clarification of the new standard appeared in SAS-130, issued at the end of 1994, which asked that auditors play an active role in assessing a company's ability to remain a going concern.
The new standard was codified into law as part of the Private Securities Litigation Reform Act of 1995. Under the new standard, auditors are required to look at a company's management plans, strategies, and financial and business stress. They are responsible for understanding and assessing existing conditions, including those of other companies in the industry and the economy in general. They are not, however, expected to predict future conditions or events.
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