
The number of going concern opinions have decreased by 31 percent over the past two decades, Accounting Today reported, citing a new report by Ideagen Audit Analytics.
The report found that the number of companies that received going concern opinions in 2023 was 1,515, a 31 percent drop from 2004’s 2,202, and a 20 percent drop from 1,896 in 2022. Total going concern opinions peaked in 2008 at 2,853 during the financial crisis before declining—only to spike in 2021-22, largely due to the COVID-19 pandemic and the rise of special-purpose acquisition companies (SPACs).
The report's introduction provides the context for its findings: "The auditor has a responsibility to evaluate whether there is substantial doubt about the company’s ability to continue as a going concern. If the auditor believes there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, not to exceed one year beyond the date of the financial statements, they should obtain information about management's plans that are intended to mitigate the effect of such conditions or events and assess the likelihood that such plans can be effectively implemented. If after evaluating the evidence, there remains substantial doubt about a company’s ability to continue as a going concern, an audit firm will include an explanatory paragraph in the audit report explaining why there is substantial doubt about the company’s ability to continue. Opinions with this type of paragraph are designated going concern opinions in this report."
The report noted that fiscal year 2020 "saw an all time low in going concern opinions. This was followed by a spike in both total opinions and going concerns during FY2021. While the number of total opinions decreased by nearly 6% in FY2022, the number of going concerns continued to increase. FY2023 shows a return to pre-2021 levels in terms of total opinions and going concern opinions.
In 2016, Accounting Today reported that the number of going concern opinions declined in 2014, primarily because many of the companies identified as being in trouble by their auditors in previous years did go out of business.
"The initial results appear positive because they show a drop in both the number and percentage of going concerns," Donald Whalen, former general counsel and director of research at Audit Analytics, told Accounting Today at the time. "Further analysis, however, reveals that most of the decrease is due to company attrition from the prior year's going concern population (companies that disclosed a going concern for fiscal year 2013 that chose to subsequently file a termination with the SEC) rather than improvement in the population."
The new report analyzed financial statements in the Audit Analytics SEC Audit Opinion database. It also contains findings by company size, filer type, industry and changes or repeats in going concern opinions.