Audit Opinions with Going Concern Modification Referencing COVID-19

As of July 13 2020, there have been 42 audit opinions for SEC-registered public companies that have cited the COVID-19 pandemic as a contributing factor to substantial doubt about a company’s ability to continue as a going concern for the next 12 months.1

Since our last update in May 2020, there have been 12 additional audit opinions filed with a going concern modification citing COVID-19 – a 40% increase over 7 weeks. For 3 of those companies, it was their first going concern, bringing the total up to 17 companies that were issued their first going concern in the last 5 years specifically citing the pandemic as a reason.

The table below depicts the 12 additional companies and the reasons, other than COVID-19, cited in the going concern opinion:

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For some companies, it is evident how the COVID-19 pandemic has impacted operations. For example, J. Jill [NYSE: JILL] and Stein Mart [Nasdaq: SMRT], apparel retailers that operate brick-and-mortar stores, have been impacted due to mandatory store closures and will continue to be impacted by decreased consumer willingness to visit malls and shopping centers. The decrease in consumer foot traffic could mean material adverse effects on results of operations, cash flows, financial position and liquidity. Subsequently, these effects could also result in a company’s failure to comply with financial covenants and inability to pay vendors and landlords.

With other companies, factors contributing to a going concern may be more indirectly related to the pandemic, but the impacts are still tangible. For example, the outbreak of COVID-19 has adversely impacted the operations of China Finance Online Co. [Nasdaq: JRJC], a web-based financial services company. As a web-based company operating during the pandemic, different issues will arise than what affect businesses in conventional, non-virtual settings. One point of concern, as disclosed by management, is the direct impact on revenue caused by customers that are trying to save money by reducing or canceling subscriptions for services provided by China Finance Online. However, the impact caused by reduced customer subscriptions is only a component of the going concern.

Over the last 12 months, China Finance Online has also suffered recurring losses, generated negative cash flows from operations, and has $9.4 million overdue balance payable to third-party investors. The potentially precarious situation of the Company prior to the pandemic, and the subsequent operational impacts from the pandemic, are what raises substantial doubt about the Company’s ability to continue as a going concern.

Looking at the top 5 issues that have accompanied the 42 going concern modifications on audit opinions referencing COVID-19, it’s clear that the pandemic may be a tipping point for otherwise financial struggling companies.

Of the 42 going concern modifications referencing COVID-19 in 2020, more than half also cited operating losses as a contributing factor, while 71% cited cash flows or insufficient cash/liquidity. Companies already struggling with these types of factors may find themselves in an untenable situation during and/or after the pandemic, as the impacts from COVID-19 will only continue to exacerbate their pre-existing issues. This serves as an important reminder that companies in a precarious financial position are at risk for collapse when faced with unanticipated events that can directly, or indirectly, broadly impact their operations.

While company management can take steps to mitigate some financial risks associated with COVID-19 operational impacts – such as furloughing employees, suspending capital expenditures or refinancing existing debt amortization – these measures may not be enough to completely assuage the negative effects. Although, it may be easier for companies in some industries to impose more broad mitigating steps than in other industries.

As of July 13, 2020, 48% of companies that have received a going concern modification are in the Manufacturing industry. Manufacturing companies are diverse, and many operate segments in different areas of the world due to a worldwide consumer economy and global supply chains. This poses two complicated issues in light of the pandemic: (1) the pandemic has affected virtually every corner of the world where a manufacturer may have operations and (2) an interruption to any portion of a manufacturer’s process may impact the overall financial health of a company.

For example, management for Ferroglobe PLC [Nasdaq: GSM], a global leader in the silicon and specialty metals industry, cites the uncertainty surrounding obtaining critical materials, as well as decreased consumer demand for their products across multiple markets, as reasons for concern:

“…any decline in the global silicon metal, manganese-based alloys and silicon-based alloys industries could have a material adverse effect on our business, results of operations and financial condition. Moreover, our business is directly related to the production levels of our customers, whose businesses are dependent on highly cyclical markets, such as the automotive, residential and non‑residential construction, consumer durables, polysilicon, steel, and chemical industries.”

Ferroglobe PLC, 20-F Annual Report for FYE 2019-12-31; filed with SEC on 2020-05-29

The going concern in Ferroglobe’s audit opinion for fiscal year ended December 31, 2019 is its first going concern, and the Company disclosed that the COVID-19 pandemic is not currently materially affecting their day-to-day operations.

Due to the extent of the interlocking components necessary for Ferroglobe’s operations and the uncertainty regarding the future of the pandemic, in addition to the impacts over which the Company has no control, it is understandable that there is substantial doubt about their ability to continue as a going concern.


Considering the extensive impacts of the COVID-19 pandemic and the magnitude of the uncertainty, it may seem surprising that only 42 companies have been issued a going concern modification on an annual audit opinion with a reference to potential financial impacts from the pandemic. However, it is important to note that audit opinions relate to a company’s financial position for the previous 12 months; the going concern modification is a prediction for the next 12 months informed by the previous 12 months.

As annual audit opinions are filed for fiscal years that ended after the start of the pandemic, we would expect to see an increase in the number of companies receiving a going concern modification either directly or indirectly related to COVID-19.


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1. This analysis is based on audit opinions for publicly traded SEC registrants that have filed an annual or current report containing an audit opinion since February 1, 2020.