Staying Alive After Going-Concern Warning
March 17, 2009, Compliance Week

Current economic conditions are forcing companies of all sizes and industries to take measures and brace themselves for potential going-concern warnings from their external auditors.

"When companies are hovering near trouble, they should first be upfront with auditors and lenders," says Adele Hogan, a partner in White & Case's Securities Practice in New York. "Assuming they remain within the parameters of what's allowed by Sarbanes-Oxley, companies may be able to take measures working with auditors and advisers to keep clear of danger," she added.

"Early dialogue with lenders, for example, may lead to a relaxation of debt covenants," Hogan says. "Many lenders don't want any more non-performing debt on their books right now, so they may be willing to constructively work with you."

"If the going-concern warning is imminent, companies would be wise to deal with it constructively rather than engaging in tactics to stall or head off the disclosure," Hogan says. "You need to have very candid, detailed, unemotional-as-possible conversations with accountants," she says. "Discuss your cash-flow needs, your sources, and uses of cash, and things you could be doing like layoffs or downsizing."