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Key Considerations for Issuers and Auditors Regarding Going-Concern Analysis

Issuers in the United States and their auditors have related, but distinct, obligations to evaluate on a periodic basis whether there is substantial doubt about the issuer's ability to continue as a going concern.  In normal times, this evaluation, conducted with an appropriate level of diligence, results as to almost all major public companies in the conclusion that there is no substantial doubt about the entity's ability to meet its obligations in the months to come. 

But these are not normal times.  As the COVID-19 crisis takes an ever-greater toll on the American economy, and as multiple well-known companies declare bankruptcy, the going-concern assessment has taken on new relevance for issuers, auditors, and others in the financial-reporting community.  As a result, the number of issuer filings that contain a going-concern disclosure appears to have substantially increased. 

In our recent client alert, we review some of the significant considerations that apply to the going-concern analysis from both the issuer's and the auditor's perspectives.

Summary of Issues

  • Financial Accounting Standards Board (“FASB") accounting standards and Public Company Accounting Oversight Board (“PCAOB") auditing standards both require an assessment of whether there is substantial doubt about the issuer's ability to continue as a going concern, including evaluating concrete management plans to address the circumstances giving rise to the reasonable doubt.  The auditor is required to make an independent assessment, not simply evaluate management's process.
  • Important differences between the accounting and auditing standards include that the management assessment occurs quarterly and looks forward one year from the date the financial statements are issued, whereas the auditor annually considers the period one year from the balance sheet date, with different quarterly review procedures.
  • Both auditors and issuers should anticipate potential exposure to regulatory and private litigation should their forecasts of the effects of the COVID-19 pandemic prove inaccurate.


For additional information regarding this post, please contact the authors Brian Lane or Michael Scanlon, partners in Gibson Dunn's Washington D.C. office, or David Ware, of counsel in Gibson Dunn's Washington D.C. office and a former Associate Director in the PCAOB's Division of Enforcement and Investigations.  The authors would like to thank David Korvin, an associate in the firm's Washington D.C. office, for his work on this post.

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