And Out Come The Auditors…

I may be wrong, (and willingly defer to those with detailed knowledge and experience ...Mark MacInnis, et al) but aren't auditors required by either law or professional code to provide an opinion on the viability of the company just audited? I see such opinions frequently in annual reports and similar documents. Just wondering.

Finally. I've been raising this issue for maybe two years. And I'm sure many auditors have been agonizing whether to give "clean" opinions. When a business is in very serious trouble, the realistic thing to do may be to write assets down to liquidation value, and recognize liabilities that will be triggered by defaulting on contracts, etc. JT asks, "aren’t auditors required by either law or professional code to provide an opinion on the viability of the company just audited?" Yes, but a better way to put it is to say auditors are expected to disclose doubts as to whether the firm is a going concern. See Mr. Sparky's comment. Grant Thornton's mouthpiece says "we're" (he means "they're") in "uncharted waters." Uncharted? Hell, anyone with eyes to see could tell GM's been in a tailspin for years. And auditors shouldn't count on might-happens or hope-fors to salvage a ship going down. As to whether auditors only need to ensure the books balance, I suggest reading about what the draconian Sarbanes-Oxley act imposes on auditors, managers and directors. By the way, RF, that topic's worth an article.

MikeinCanada: Actually, it is much more complex than just making sure the books balance: Auditors verify that their client companies follow all the myriad and at times arcane accounting rules in calculating and presenting their financial statements. They also must make a judgment, as this article alludes, to whether a company is a "going concern", whether the stakeholders (lenders, shareholders, government entities, etc.) have a "reasonable" expectation of the entity continuing in its business, based on all environmental and internal factors. The reason this makes a difference is that the financial estimates and methods can change drastically depending on whether a business is viewed as a "going concern" or not. Further, since Enron and Worldcom, et al, auditors must make a determination as to whether TOP management is aware of, and takes full responsibility for, the financial results, all financial statements, and the accounting methods, estimates and calculations used to prepare the financial statements. That way, the CEO's of the world can't go Enron on their accountants, the old "I had no clue what the beancounters in the finance department were doing down on the 11th floor!" defense. For companies like GM and Chrysler, the auditors are ostensibly hired by the board, and report to the boards audit committee. Typically, at the close of an audit, but before the audit firm issues their audit report, the auditors sit down and have a closing meeting with the top management, and the audit committee. I am betting that a fly on the wall at the audit closing meeting over the last few years at GM and Chrysler would have heard many interesting discussions.

As a lawyer in Silicon Valley for the past 20 years, I've worked closely with auditors, especially Ernst & Young. I don't like auditors. Never have. But I must admit they are between a rock and a hard place. And they have my sympathy. In my opinion, auditors should work with their clients to help them make their businesses successful. Instead, auditors have been deputized as policemen for the Securities and Exchange Commission and the public. Auditors and clients have become adversaries. Should auditors make decisions like whether GM is a going concern? Should they have to? I say no to both questions. You don't need a weatherman to tell which way the wind blows. You don't need an auditor to see that GM is not a going concern. Any GM stockholder can look at the price of their stock (closed at $2.00 today, for a market cap of $1.22 billion) and tell you that.