Audit Analytics annual report, 2016 Going Concerns – A Seventeen Year Review, is now available. This report, which looks at going concern opinions over the last seventeen years, analyzes going concern totals and percentages of total opinions by year with a further breakdown of new and repeat going concerns, as well as the issues which undermine these assumptions.
An initial review of the data seemed to provide positive news but a deeper analysis reveals a mixed bag of indicators. At first glance, the results appear positive because they show a drop in both the number and percentage of going concerns. Yet, further analysis reveals that company attrition played a large role in the decrease of 123 companies from 2015 to 2016.
However, positive news was discovered when analyzing new going concerns (going concerns filed for a particular fiscal year, but not the year prior). For fiscal year 2016, the number of new going concerns is estimated to be 467, which is the sixth consecutive year having an amount less than 600.
In contrast, Audit Analytics found troublesome results when analyzing the number of companies that improved from the prior year. The number of companies that improved well enough to shed their going concern status is tied for the second lowest population of companies that recovered during the 16 years analyzed. This very low number of improving companies indicates that many companies with going concerns are still experiencing difficulties and are unable to improve enough to rid the going concern status.
This cessation can occur for one of two reasons: (1) the company files a subsequent clean audit opinion (subsequent improvement) or (2) the companies stopped filing audit opinions altogether (subsequent disappearance). A review of companies that experienced a subsequent improvement reveals that only 145 companies that filed a going concern in 2015 were able to file a clean audit opinion in 2016. This figure represents a tie for the second lowest for any year analyzed, since 2000.