GOING CONCERN WARNINGS USA

NEW YORK, Sept 30 (Reuters) - U.S. accounting rulemakers are expected
to revisit soon a 2008 proposal that would address the knotty issue of
"going concern" warnings, seeking to better assure that alarms are
sounded before companies fail.

At issue are the standard warnings that auditors are required to
include in annual reports when they have substantial doubt that a
company will survive.

With lucrative audit fees on the line, auditors have been accused of
failing to flag going concern doubts, though some proposed changes
could create new frictions between auditors and managers, some experts
have said.

The 2008 Financial Accounting Standards Board proposal contemplates
making companies themselves responsible for warning when there is a
risk that they may not be able to continue as a going concern. In the
past, this job has been mostly the duty of their auditors.

A lack of going concern warnings for banks that got into trouble in
the 2007-2009 global credit crisis was a black eye for the audit
profession and triggered calls for reform.

Only two of the 10 largest bankruptcies in the credit crisis had going
concern opinions from auditors, according to members of an auditor
watchdog group.

FASB's proposal would essentially bring U.S. standards closer to
international rules, which already require companies to make going
concern assessments, with checks by auditors.

Though the proposal was put on hiatus because of other priorities, it
is expected to be back on the board's agenda soon, said Christine
Klimek, spokeswoman for FASB, the private Norwalk, Connecticut, group
that sets accounting standards for U.S. public companies.

FASB has said it plans to revise the original proposal because of
issues raised in comment letters, and it is still uncertain what its
final rule will look like.

Many auditors think managers should be assessing their going concern status.

"You're dealing with a forecast of what will happen over the course of
the next year or so ... that is something that is best done by
management," said Peter Bible, a partner at accounting firm
EisnerAmper and former chief accounting officer for General Motors Co
(GM.N).

"We can test the assumptions they (managers) use, but to develop that
is just not in our wheelhouse," he said.

U.S. AUDITOR WATCHDOG ALSO INVOLVED

The assumption that a company is a going concern underlies almost
every financial statement, justifying the way its assets are priced.
Unless a company will survive to derive value from its assets, the
assets have to be priced based on what they would fetch in a
liquidation.

Because managers prepare the financial statements, many accounting
experts say it is only logical that they need to assess whether their
business is a going concern.

FASB's proposal would make managers disclose when they have
substantial doubt about their company's ability to remain a going
concern, but auditors would not be off the hook.

In fact, the main U.S. auditor watchdog group has been looking into
tightening auditor standards since receiving complaints about the
large number of companies that failed during the financial crisis
without an auditor's red flag.

"The auditor has a responsibility under federal securities law and our
standards today to evaluate whether there's substantial doubt about a
company's ability to continue as a going concern," said Keith Wilson,
deputy chief auditor at the Public Company Accounting Oversight Board.

"We are reviewing with FASB and the Securities and Exchange Commission
whether improvements can be made."

WARNINGS CAN BE DEATH KNELL

Auditors are reluctant to issue a warning that can amount to a death
knell for some companies, causing investors to flee and credit to dry
up, accounting experts said.

Audit fees can also be at stake.

Even if a company survives, an auditor is two to three times more
likely to lose a client receiving a going concern warning than a
similarly distressed company that did not get one, according to
Marshall Geiger, an accounting professor at the University of
Richmond.

FASB's proposal would make the going concern process more complicated,
Geiger said.

"I do think there's going to be this friction now between what
management says and what the auditor says," he said. If an auditor
issues a going concern warning that is contrary to the company's
opinion, "I'm not sure how that is going to be resolved," he said.

Managers would be hesitant to publish a going concern warning that
could be a self-fulfilling prophesy, he said.

"It makes it pretty difficult on management to come to the plate,
particularly at a difficult time in the company's life, and say
publicly, 'We're not sure if we're going to be around next year,'"
Geiger said. (Reporting by Dena Aubin. Editing by Kevin Drawbaugh and
Matthew Lewis