According to this Audit Analytics report reviewing 21 years of “going concern” qualifications in public company audit reports, 2020 was a bit of a milestone year. Here’s an excerpt from the report’s intro:
The number of companies that received a going concern opinion during fiscal year (FY) 2020 declined to a record low of just 1,261. The percentage of companies that received a going concern opinion during FY2020 also declined to a record low of 17.9%. Going concern opinions have been declining since they peaked during FY2008 with 2,851 – during the height of the financial crisis. FY2008 also saw a high of 28.2% of companies receive a going concern opinion.
The gradual decline in going concern opinions since FY2008 had brought the percentage of companies that received a going concern opinion in line with pre-financial crisis figures. But the steepness of the FY2020 decline has brought all new lows. The decline was led by improvements from smaller and mid-size companies. Non-accelerated filers saw a 10.5 percentage point decline, and accelerated filers saw a 5.5 percentage point decline in the percentage of companies that received a going concern opinion during FY2020.
The report also addressed the reasons for going concern qualifications. Many reports listed multiple factors, but leading the pack was “recurring losses,” which was cited in 71% of all 2020 going concern opinions. While that’s down from its peak of 85% in 2018, the recurring losses issue was still cited twice as much as cash constraints, which were the second most frequently cited issue. The report notes that despite the SPAC boom, the percentage of reports citing no or limited operations as a reason for a going concern qualification declined over the past decade from 48% to 21%.
– John Jenkins