illustration features headshots of Lynch and Cullinan
Accounting Profs. Mike Lynch, J.D. (left), and Charles Cullinan, Ph.D. (right), and Lynch’s son and Bryant MPAc Program alum, Nicholas Lynch, Ph.D., an accounting professor at California State University, Chico, used their expertise to help businesses of all sizes guide decision-making regarding going concern financial reporting and auditing.
Accounting professors' article offers guidance for managing the going concern risk during pandemic
Jun 07, 2020, by Staff Writer

The COVID-19 pandemic has caused many businesses across the U.S. to face increasing doubts about their ability to meet financial obligations and continue as a business of going concern. In “Managing the Going Concern Risk in an Uncertain Environment,” an article recently published in CPA Journal, accounting faculty at Bryant and California State University use their expertise to help guide businesses and their auditors in decisions regarding managing risk, including going concern financial reporting and auditing.

"Going concern" is an accounting term for a company capable of meeting debt obligations and carrying on as a business. Every company must periodically assess its ability to operate as a going concern by evaluating the effects of known and reasonably knowable conditions and events on its business, including the COVID-19 pandemic. If the assessment raises substantial doubts about the going concern of the business, managers must develop a plan to alleviate substantial doubt, and provide appropriate disclosures to capital providers and other interested parties. 

"Businesses should understand that [managing going concern risk] is really a group effort that involves all stakeholders."

In the article, Bryant Accounting Professors Mike Lynch, J.D., and Charles Cullinan, Ph.D., and Lynch’s son and Bryant MPAc Program alum, Nicholas Lynch, Ph.D., an accounting professor at California State University, Chico, discuss the steps that managers, auditors, and tax accountants provide in the assessment, planning and evaluation, and disclosure process. The article also includes an in-depth analysis of regulatory guidance and financial relief for businesses stemming from the COVID-19 pandemic.

Recent guidance by the SEC also adds to the timeliness of the article. The SEC recently began to urge companies to be more forward-looking in their going concern reporting, rather than relying heavily on historical trends. This is one reason why the professors thought the business world could use a synthesized update on going concern financial reporting and auditing.

Going concern reporting in a pandemic

Says Nicholas Lynch, “The whole idea of the paper comes from the fact that in the uncertain economic times that we're living in, the [SEC’s] emphasis on the types of disclosures surrounding the ability of the business to continue as a going concern has been heightened.” 

"In the uncertain economic times that we're living in, the [SEC’s] emphasis on the types of disclosures surrounding the ability of the business to continue as a going concern has been heightened.”

Stakeholders and markets need to know if there’s substantial doubt, which, given the uncertain times, is the reason for the SEC’s emphasis on the future. Says Cullinan, “This is relevant to trying to make that projection: Will we (the business) be able to get over this hump?”

“This is where some of the tax laws can come in,” says Mike Lynch. There are a number of programs, such as the CARES Act recently passed by Congress, that could help fill the gap for businesses, which the article details. But, says Lynch, “These programs are changing rapidly. And sometimes what you see…is not what you get.”

“In the article, we also stress the importance of reopening changes at the state level, to help companies avoid taking out a loan when there’s no customers to serve or workers to recall,” says Lynch.

Providing advice for the community

Says Nicholas Lynch, “Businesses should understand that [managing going concern risk] is really a group effort that involves all stakeholders. That effort is even more pertinent today, given the pandemic. Businesses should even be working with their suppliers, creditors, landlords. Don't be out on an island even if you're the smallest business.”

In a webinar on June 11 titled “Helping Your Business to Manage Risk in the COVID-19 Environment,” the authors will discuss elements of the article and answer attendees’ questions. The webinar is open to alumni and the Bryant community. Registration for the webinar is required.
 

Read More

Related Stories