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August 2001
Letters to the
Editor
The guest commentary in the April 2001 issue, “The E-Business
Downturn and CPAs,” by Bruce Nearon, was very timely. It contained many useful
points and I’m sure was relevant for many readers, not just as auditors but also
as individual investors in e-businesses themselves. However, I would like
to point out a minor technical error in an otherwise excellent article. Mr. Nearon
advocates the issuance of a “qualified opinion” if there is substantial doubt
about a client’s ability to continue as a going concern; such advice is incorrect.
Since SAS No. 58 (AU 508) became effective in 1989, under these circumstances
the auditor should issue a standard unqualified opinion with added explanatory
language, which mentions the doubts regarding the client’s going concern status.
Or, if the auditor feels the situation warrants it, he may disclaim an opinion.
Yours truly,
Anthony
T. Barbera, CPA, MBA
Instructor of Accounting
School of Business
SUNY-College
at Old Westbury
*****
The following is a response from the author: Professor Barbera is
correct in his reading of SAS 58. However, to issue an unqualified opinion, the
entity would have to adequately disclose in the notes to the financial statements
details with respect to the entity’s ability to continue as a going concern for
a reasonable period of time. Otherwise, a departure from GAAP exists, which may
result in a qualified (except for) opinion or an adverse opinion (AU 341.14).
A related issue that could result in a qualified opinion is if there is substantial
doubt about the going concern assumption. Reported assets, such as capitalized
software, and acquired research and development, and acquired goodwill may be
overstated unless stated at liquidation value, which in the case of many bankrupt
dot-coms turned out to be zero.
Bruce H. Nearon
J.H. Cohn LLP
Roseland, N.J.
(973) 403–6955
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