Category Archives:RESTRUCTURING

Why Study Business Failure

Study Business Failure to achieve Business Success

Study Business Failure to achieve Business Success

    Studying Business Failure

      Knowing Business Failure has Resulted in Business Success

We can write about business success, however we need to learn from business failure.  Once I mentioned at a business forum that I study “failure”. The look I received was of shock and puzzlement.  Why would you want to study failure and not the successes of entrepreneurs like Steve Jobs?  Obviously they missed the point.  Yes, studying the successes of Steve Jobs is important, but equally important is to study failures of start-ups and mature companies to identify missteps, symptoms, causes, and the reasons companies came and went.  Remember Steve Jobs studied the business failure of Apples’ previous management upon his return to the company.  Think of the company he left us with.

Think about it, NASA studied its mistakes to make corrections with the space shuttle program. Pharmaceutical companies and financial services companies study product design failures to make improvements, and hospitals study their service offering to improve the quality of healthcare service. Successful companies create value for shareholders, customers, and other constituents from learning from business failure.

Knowing how value was destroyed will make you a better business owner, investor, and stakeholder.  Studying the phenomenon of entrepreneurial failure can create value, a return of investment, by understanding the fundamental causes behind business breakdown.  Studying business failure should be performed because starting the business strategy process.

Business failure does not end in bankruptcy liquidation.  In the event a company declines in value and is considered worthless, the enterprise failed from the perspective of the owner.  However, the business or the assets of the business in the hands of others may result in the re-creation of value, jobs, and new business in the eyes of customers, suppliers, and employees.

When discussing business failure, I mean that the business has fallen short of its goals, thus failing to satisfy investors’ expectations.   Business failure involves the loss of capital and the inability to make the business successful.  With the fall in revenues and/ or the rise of expenses, the company cannot continue to operate under existing ownership and/or management.

Learning from Business Failure

Learning from business failure can be viewed from different perspectives.

  • First: Reviewing the business loss from a financial and emotional cost perspective.
  • Second: Studying the process of learning outcomes
  • Third: Grieve /understand reality/ reflection
  • Four: Journey to Business Failure

The Business Life Cycle and Stages of a Distress Business

We can start at looking at business ecology from the business life cycle perspective.  Although the business life cycle has various definitions and stages, fundamentally the business life cycle can be viewed from birth (startup), growth (emerging), maturity (stable), decline (distress), and either failure (insolvency) as well as revival (renewal).   Different causes of business failure depends generally where the organization is located on the business life cycle.

A failed business rarely moves from prosperity to bankruptcy in one step.  Each step has diagnostic value.   Business operators, adviser, directors, investor will learn from studying failure.

Early Stage—In the early stage of business failure, companies operate with inefficiencies that show a lack of synergies in production and distribution.  Customers complain about quality of products and services.  Both revenues erode and margins suffer.

Intermediate Stage—In the intermediate Stage of business failure, the trouble in production and distribution are severe.  For manufacturing companies, inventory build up or material shortages are quite noticeable.  Employee morale is low.  Rumors about the company’s problem spreads.  Top employees begin leaving as “the cream” search for green pastures.

Late Stage—In the Late Stage of Business Failure, both management and reporting systems breakdown.  Vendors are requesting cash for delivery.

Business Failure: Why Start-ups and Young Companies Fail!

Speaking about startups and young companies, start-up and young companies face different issues than older mature companies.  The primary causes of start-up company failure are lack of resources, competence, and inexperience.

Financial resources–The inability to obtain financial resources necessary to develop or maintain an operational synergy is a problem. For young companies the lack of financial endowment tends to be the number one cause of business failure.  The deficiency on financial resources prevents the company from developing the operational infrastructure (systems, processes, and people) and applying an adequate strategy to succeed because of the lack of sufficient working capital either in the form of internal cash or line of credit.   To create a sale, an organization needs working capital to pay for the revenue generating process (payments to vendors, employees, overhead, etc.) until cash is received from the sale.   And there is a point where bootstrapping is no longer sufficient to execute the strategy.

Business competence and management–Subject matter experts tend to establish new companies on the belief that making an entrepreneur endeavor work is not as hard as people think.  Such beliefs are furthest from the truth.   The inexperience and lack of business acumen is the principle factor of young company failure.  Studies have shown that the deficiencies in the competence of management negatively influenced the direction of young companies toward business failure.  Many subject matter experts lack the acumen about the complexity of business.   Both not understanding marketing and finance contribute to the business demise.

Business Failure: Why Mature Companies Fail!

For mature companies, business failure generally is traced to the inability to adapt to the changes of the environment.  The company ignores changes in economic conditions, changes in competitive conditions, changes in technology conditions, and changes in societal conditions.   When the company is in decline, in large part management tends to be “in a state of denial”.

After the financial crisis and the current government budget problems, economic conditions shifted for the entire business landscape.  As an example with the U.S. federal government, the largest buyer of goods and services, cutting back on contracts, large defense contractors and other government service providers is forced to reduce employment and expenditures.   Companies that primarily depend on government contracts the cutbacks are starting to impact the bottom-line.


Business Restructuring! Do You Know When it is Time?

When do you know it is time for a business restructuring? Wait too may be too late!

Restructuring TimeA restructuring, is it time? Tick, tick, tick, the clock is ticking. In less than a week payroll is due. The company does not have enough cash to pay the 200 employees and you are not even thinking about how to pay the suppliers. The credit line is fully drawn and you have no more collateral to give. What do you do? How much time does the company have? These are the type of issues the company is facing. Is it time for a business restructuring?

If you cannot meet payroll, staff will leave, the state will be notified that the employees have not been paid, and this will be only the beginning of the company’s problems.  You know that if the company does not meet payroll, the game, known as the business, is over. And this is the only the start of the problem. For a privately owned business, personally guaranteed company obligations will default, and the personal assets of the owners will be seized.

This is not so much of an extreme case. This scenario often happens. So thinking about the company from the perspective of how to avoid or change the situation is critical.  A business restructuring may be needed and now!

Business difficulties can happen quickly and for many reasons. Businesses may suffer from lost market expectations, reduced operating earnings, or severe cash flow troubles. Whether triggered by marketplace forces or internal dynamics, an early assessment and quick decisive moves will be needed to reinvigorate earnings and company value (PriceWaterhouseCoopers LLP, 2012). This is when you know that a business restructuring must commence.

Stakeholders Want Answers

Collectively, employees, vendors, bankers, and other creditors (the stakeholders), will be assessing answers from the rubble of the company to questions ranging (DiNapoli & Fuhr, 1999) from “What’s in it for me? to “What are my alternatives?” to “How did this happen and when do I get my money?” Think about it; the following questions each stakeholder will want to know:

  • The causes of the company’s distress
  • Required steps to affect an effective restructuring
  • Management’s capabilities, abilities and costs to execute a restructuring plan
  • Assessing alternatives to the restructuring and the related costs
  • Determining the goals of the various stakeholders
  • Establishing the value that can be realized from company for a restructuring, a sale or liquidation of the business

Many issues can cause business distress. Liquidity constraints can limit the business from operating efficiently. Cash flows, cash reserves and access to a working capital line of credit can result in a short-term liquidity crunch. The inability to pay employees, suppliers, and the taxing authorities can be acute. This will lead the company to failure.  A business restructuring will be required.

Economic Downturn

An economic downturn, shifting buyer taste or behavior, increased competition, ineffective operations, disruptive technologies, incompatible strategies, issues that can seriously place the company into financial distress. Left unanswered can result in threatening the organization’s existence.   A host of problems will trigger declines in revenue, customer loss, key employees, profitability, and cash flows that will lead to working capital constraints. Distressed symptoms often occur well before crisis hits and is felt. Before you know it, the company is in a death spiral. This situation is not inevitable, and in many cases, can be halted and reversed. Taking aggressive action and discovering at an early stage through reviewing the organization’ strategies and it operations efficiencies can lead to a swift, decisive action to restore organizational performance and enterprise value.  Timely action is critical in making this happen.

When a company is doing poorly that failure appears imminent, only a restructuring or turnaround can restore performance and profitability that can enhance the value of the business.

The best way to learn how to restructure a business is to study failure.  Think about it, NASA studied its mistakes to make corrections with the space shuttle program. Pharmaceutical companies and financial services companies study product design failures to make improvements, and hospitals study their service offerings to improve the quality of healthcare service. Successful companies create value for shareholders, customers, and other constituents.

Many companies that once dominated their markets later slide into corporate distress often occur. These organizations lose their touch. It is often said that success breeds failure. Companies no longer have that “mojo” that touch, which creates shareholder value. When a company succeeds, we assume that they know what they are doing, but in fact it could be they got lucky. Companies create an overconfidence bias, becoming so self-assured that they think they do not need to change anything.

Business Restructuring

A number of factors influence a business restructuring strategy to achieve recovery. From an external perspective, in most part, the competitive environment and the maturing of the industry influence the selection and effectiveness of the turnaround strategies. From an internal perspective, the severity of the financial distress and management failure is a contributing factor to formulating the turnaround recovery strategy. The choice of the restructuring strategy is a function of the company size, management perception of the external factors, but most importantly, the degree of resource availability.

For a small business, given the exceptional high mortality rate, elements of decline and failure are important. Small business failure is generally attributable to issues of management control. Performance deterioration and resource availability are critical factors of for the enterprise success in addition to the strategies chosen to, in some cases, stop the bleeding.

Two organizations that have members that can effectively structuring and implement a business restructuring strategy include the Association of Insolvency and Restructuring Advisors (AIRA) where you can find a Certified Restructuring and Insolvency Advisor (CIRA) and the Turnaround Management Association (TMA) where you can look for a Certified Turnaround Professional (CTP).  Remember…tick, tick, tick the clock is ticking maybe to your business’s decline.


DiNapoli, D., & Fuhr, E. (1999). Trouble Spotting: Assessing the Likelihood of a Turnaround. In D. DiNapoli, Workouts and Turnarounds II: Global Restructuring Strategies for the Next Century: Insights from the Leading Authorities in the Field (Vol. I). John Wiley and Sons.

PriceWaterhouseCoopers LLP. (2012, August 20). Restructuring and recovery. Retrieved August 20, 2012, from PWC:


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Business Failure: Business Success Can Breed Business Failure


“Corporate failure is never the results of a random set of events. It is normally a reflection of deep-seated corporate shortcomings.”

 (Chartered Institute of Management Accountants, 2012)

Business Success Can Breed Failure

We have all heard about the stories of companies that once dominated industry but later fell into business decline. There are many reasons for this. The usual suspects for business decline include becoming to dependent on existing customers, the inability to adapt business models to deal with destructive technologies, the lack of leadership, and focusing on short-term financial performance all have led to business demise. One reason not often mentioned for business decline is the hindrance of learning at both the individual and organizational levels about the true causes of business success. Success can breed failure (Edmondson, 2011). Learning enhances your capacity to face and respond to situations. However, from the business success perspective:

  • We draw wrong conclusions about the business success. We believe our success is because of the strategy, the talent, or the business model used is the cause of the success creating a false premise.
  • We fool ourselves developing an overconfidence bias. Although faith in ourselves strengthens our self-assurance to make a decision and execute a strategy, it can also breed closed mindedness and foster a “well if it worked before, it will work again” rational, which is not considering environmental changes and just plain luck.
  • We do not fully analyze the causes of the business success.  We will ferret the causes of a failure because we have to know why something bombed. However, we will not devote the time and resources to find out why the company was successful—again maybe because of false assumptions.

When companies catch the upward draft of success, the arrogance of the enthusiasm kicks in. Not surprisingly, the virus of success can become fatal in five or ten years (Kolind, 2006).  Think of Research In Motion (RIM) and AVON, companies in decline. The downdraft winds of business decline are a factor of the business life cycle.  The death cycle of business decline encompasses three factors: company size, company age, and company success.  One of these three factors can result in increase in:

  • The number of layers in management
  • The number of departments
  • The amount of formal procedures
  • The length in time the long-term planning process
  • The number of budget items
  • The amount of meetings
  • The quantity of reports

A problem is when the company loses its mojo. Success blinds management and causes lose touch with its customers.  Bureaucracy grows, information gets filtered and delayed, and arrogance breeds. Unfortunately, management will begin blaming others for performance slippage when the company begins to slide due to the downdraft of business failure.

Recommended actions include:

  • Question the causes of business success and failure.  Do not get stuck looking at the symptoms.
  • Do not get enamored at a cult personality be it CEO, advisor, leader or expert.  Question decisions and recommendations.  Remember, there is no such thing as a stupid question.  What is stupid is when you fail to ask the question.
  • Have strong, independent advisors and directors.
  • Complexity is the “fog of noise designed to hide reality.” Find and streamline to clarity.
  • Align pay and remunerations with risk.


Chartered Institute of Management Accounting. (2012, February 15). Understanding the causes of corporate failure. Retrieved December 15, 2012, from Financial Management:

Edmondson, A. C. (2011). Strategies for learning from failure. Harvard Business Review , 89 (4), 48-55.

Kolind, L. (209). The second cycle: winning the war against bureaucracy. New York, NY: Pearson Prentice Hall.


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The Company is in Trouble: What do I do?

Every business entity is different. Signs of financial distress of one company may not apply to another. Notwithstanding, common problems most companies experience tend to be warning signs, signals, of pending trouble regardless of type of business, industry, size, etc.

Your company may be experiencing these types of symptoms:

  • Revenues experiencing a decline over several quarters or not meeting budgetary levels. Or your cash position is getting low as your product or service sales fallen off. You are constantly keeping an eye on the business cash cycle trying to avoid an imbalance of cash in take to cash outflows.
  • The business has lost one of more key customers and the indication of replacing the lost income is not looking promising.
  • The business is struggling to meet payroll.
  • Secured creditors are requesting for more collateral.
  • Creditors as well as suppliers have restricted lending the business as the business working capital gotten tight.
  • Key employees and managers have quit
  • The bank has threatened to call the loan.

It is normal human nature to avoid difficult problems and put off dealing with the issue. Hence, you may minimize the business problems or assume that time is on your side and it will go away. It will not!

Reality is here. As a manager or entrepreneur you must avoid being in a “state of denial”. These problems will not go away. When the business is heading downhill, you must decide whether or not you want to remain in business. This is an important issue to must not be put off.

Spend some time thinking about what you are going to do. It is critical that you think with your head and not with your emotions. Put aside your ego, sentiments, and pride. Think of what is best for you and your family. Family will be affected by your decision. Consider the following:

  • How difficult will it be to raise fresh money that you will need to turn around the business? The money to pay the bills and the money needed to execute your plan.
  • Question yourself do you have what it takes to save the business? For a small company, running it is hard enough. As the side time, the turn around process will be a monumental challenge. So do you opt for:
  1. Institute a turn around by either hiring a turn around specialist or lead the restructuring by yourself
  2. File for chapter 11 reorganization possibly losing control of the business
  3. File for chapter 7 liquidation
  4. Ramp down the business by sun setting the company in an orderly shutdown.
  5. Sell all or part of the business

Do not underestimate the time, effort, and commitment required of any choice. Not to mention the amount of money it will take to meet the challenge.

If you decide that you want to save the business, know that the potential benefits outweigh the sacrifices you and your family will have to make. So think clearly about the options.


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Audit Reports vs. the Zone of Insolvency: How Valuable is an Audit Report to Investors When It Does Not Have Predictive Value Of Possible Insolvency?

Many strongly believed that, in large part, the success of the U.S. capital markets is due to the quality of the financial statements and the disclosure standards used by U.S. public companies (Smith, 2012).  However, an “audit expectation gap” exists (Gray et al, 2011) between users of the financial statements and the auditors in providing informative disclosures during the financial crisis.

Audit Opinions without Predictive Value

Throughout the financial crisis of 2007 through 2009, many unqualified (clean) audit opinions were issued to entities without including the conservative informative going concern modification (GCM) paragraph prior to filing bankruptcy, or being placed into receivership in the case of a bank, although accounting promulgation requires notification by the auditors’ to users concerning of the material risk of insolvency.

Audited financial statements must provide users both predictive value and feedback value; two primary ingredients that supports the decision usefulness qualities of financial statements. When an auditor issues an unqualified (clean) opinion, however it is determines that the entity face material risk of insolvency within 12-months of the audit report issuance date, a GCM paragraph must be included in the opinion. Under Generally Accepted Auditing Standards—AU Section 341(PCAOB, 1989), states that when an auditor has substantial doubt whether an audit client’s likelihood of continuing as a going concern for one year from the date of the audit, a GCM opinion is required (Hahn, 2011).

Unfortunately, this has not been consistently followed, which lessens the predictive value of financial statements.  Andersen (2011) examined 565 companies from 2002-2004—the post Enron era and the passage of the Sarbanes-Oxley Act of 2002 compared to 2000-2001 noting that auditors provided more conservative opinions when the profession is in the news headlines, however such conservatism declined in the following periods. In a complimentary study, this trend remained the same through 2008 (Feldmann & Read, 2010).  Carson et al (2012) found that half of the bankrupt companies in the U.S. had not received a going-concern uncertainty opinion prior to filing bankruptcy.

The audit reports of financial institutions during the banking crisis provided little warning that the global financial system was at risk as to the financial statements’ narrowness of the attestation assurance (The House of Lords, 2011) and those institutions operating in the zone of insolvency. Little research both in the U.S. and abroad have been conducted on whether auditors are, or should be, reluctant to issue going concern reports to financial institutions as to the self fulfilling notion of precipitating the bank’s failure by issuing a going-concern opinion (Carson et al, 2012).

One belief is the danger that an auditor issuing a going concern may undermine the institution’s confidence that may trigger a “run on the bank” (Shin, 2009). Others may believe that that because of the implied assurance by the U.S. federal government mitigated the need for a going concern paragraph (Lastra, 2008). According to Hull (2010), regulators are concerned with the systemic risks associated with banks as “a default by one bank may create losses at other banks” (page 84), and the prospects of “moral hazard” (page 52) whereas banks are considered “to-big-to fail” requiring the government to bail out the institution to protect the financial system. Determining whether the assumption that a going concern opinion precipitates unanticipated consequences and how, if at all, moral hazard affect audit opinions will be studied. Unfortunately, accounting literature as to whether auditors were reluctant in issuing going-concern opinions to financial institutions during the financial crisis is limited (Carson et al., 2012).

The concept of Zone of Insolvency is often cited in director fiduciary duty litigation cases following bankruptcy filings (Kandestin, 2007) and derivative actions for breach of fiduciary duty (Rothman, 2012). The zone of insolvency is defined under the U.S. Bankruptcy Code by not operationally meeting one of three solvency tests (Stearn & Kandestin, 2011): (1) the Balance sheet Test, which determines insolvency when the sum of the entity’s adjusted liabilities is greater than the sum of the entity’s property, as determined by its fair value, and taking into account contingent assets and liabilities, (2) the Cash Flow Test under Section 548—Fraudulent Transfers, which requires taking a forward-look at an entity’s ability to pay its debts as they come due, which includes subjective knowledge that the company has insufficient liquidity to satisfy its obligations, and (3) the Unreasonably Small Capital Test, which is based on case-law that the entity is unable to generate sufficient profits to sustain operations and unable to raise credit.

The accounting profession is at a quandary. How will the profession follow the accounting quality concept of predictive value for shareholders to make informative decisions without lighting the “fire” to the “gasoline” when an entity is “swimming” in the zone of insolvency? The accounting rules making bodies must decide what is best for the shareholders, the capital markets, and the banking system.


For  a free online accounting mini course “Cracking the Accounting Code” designed for entrepreneurs go to


Anderson, K.L. (Sep 2011). The Effect of Hindsight Bias On Auditors’ Confidence In Going-Concern Judgments. Journal of Business & Economics Research 9.(9), pp. 1-11.

Carson, E., Fargher, N., Geiger, M., Lennox, C., Raghunandan, K. & Willekens, M. (2012) Auditor Reporting on Going-Concern Uncertainty: A Research Synthesis. Retrieved April 7, 2011, from Social Science Research Center

Feet, J. (2012, Mar.). Turnaround Topics. American Bankruptcy Institute Journal. 16, pp. 70-71.

Feldmann, D.A. & Read, W.J. (2010, May), Auditor Conservatism after Enron. Auditing 29.(1), pp. 267-278.

Gray, G.L., Turner, J.L, Coram, P.J. & Mock, T.J. (2011, Dec.). Perceptions and Misperceptions Regarding the Unqualified Auditor’s Report by Financial Statements Preparers, Users, and Auditors.  Accounting Horizons 25.(4), pp. 659-684.

Harn, W. (2011). The Going Concern Assumption: Its Journey into GAAP. The CPA Journal, pp. 26-31.

House of Lords (2011). Auditors: Market concentration and their role. Select committee of economic affairs. 2nd Report of session 2010-2011. London: The Stationery Office Limited.

Hull, J.C. (2010). Risk Management and Financial Institutions, Boston, MA: Prentice Hall, (2nd Ed.), p. 52 and p. 84

Kandestin, C.D. (2007). The Duty to Creditors in Near-Insolvency Firms: Eliminating the “Near-Insolvency” Distinction. Vanderbilt Law Review 60.(4), pp. 1235-1272.

PCAOB (1989). The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern. Retrieved on March 28, 2012 from the Public Company Accounting Oversight Board from

Rothman, S.J. (2012). Lessons from General Growth Properties: The Future of the Special Purpose Entity. Fordham Journal of Corporate & Financial Law17.(1), pp. 227-260.

Shin, H.S. (2009, Winter). Reflections of Northern Rock: The Bank Run That Heralded the Global Financial Crisis. The Journal of Economic Perspectives 23.(1), pp. 101-119

Stearn, R.J. & Kandestin, C.D. (2011). Delaware’s Solvency Test: What Is It and Does It Make Sense? A Comparison of Solvency Tests Under the Bankruptcy Code and Delaware Law. Delaware Journal of Corporate Law 36.(1), pp. 165-187.


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Strategic Management: For Struggling Entrepreneurs, Managing to Avoid the Status Quo that can Lead to Distress

Strategic Management to Avoid Distress

The negative impact of the 2008 financial market decline and the 2008 and 2009 recession pushed many entrepreneurial controlled companies’ into the “zone of insolvency.” Although no clear test exists to establish when any company has entered the state of distress, the determination involves a combination of legal and financial tests. Let us not quibble over when a company entered the zone, a violation or close to violation of financial default covenants clearly indicates the company is in trouble.

For many entrepreneurs, access to working capital and permanent capital through traditional channels is extremely difficult, such as commercial loans, asset-based lending facilities, leasing, or private equity. The challenge is the ability to finance investments in new technology, facility infrastructure, and new products and/or services, which are essential to thrive even in difficult times.  The restoration of the balance sheets will be required. This will be neither an easy nor quick journey. To source new investments, other companies whose financial conditions are much stronger may face similar difficulties in raising fresh capital.

The response to this slow economic recovery depends on the specific financial circumstances of each company, basically the organization’s financial position (the balance sheet). While many entrepreneurs are embarking on a journey to restore their company’s balance sheets, others—including many who are enjoying their best financial performance in recent years—are playing offense by opportunistically acquiring distressed assets and investing in markets where competitors are struggling to keep pace on access, service and quality. Still others are attempting to follow a “sustainable bet” strategy by leveraging areas of excellence that positions their companies for long-term financial viability.

Leveraging turnaround strategies are more important than ever to consider. While the sense of urgency is greatest among those companies operating in the distress turnaround strategies are applicable to all entrepreneurs irrespective of their current financial condition. Following the status quo of all business models must be challenged and companies, whether small or large, should reassess their strategies for continuing relevance and likelihood of facilitating sustainable financial performance.

Implementing dramatic changes in operations, financing, service and product lines, and people will be essential, including innovation, to sustaining financial performance and mission-driven success.

Avoiding the Status Quo

The Entrepreneur Distress Avoidance Journey

Business owners should start the task of accelerating their financial recovery by assessing their companies’ situation and objectively answering some tough questions:

  • What is my company’s competitive position?  What are the realistic financial projections under a “status quo” scenario?
  • What level of financial performance improvement will be necessary to obtain access to fresh capital? Is it achievable?
  • What is my company’s range of options to achieve sustainable strong financial performance?

Once these answers are explored and known will the entrepreneur, the management team and the employees understand the magnitude of the change required to position the company for sustainable financial success. Clarity on the requirements for success will begin to form and a picture should emerge about the level and manner of change needed in the way the enterprise operates.

Creative Solutions

Financial restructuring mandates rethinking the usual turnaround strategies.  Taking a comprehensive perspective and approach to creating and implementing turnaround solutions should be done, beyond just concentrating on financial tactics i.e., debt modifications. Know that not all turnaround strategies fit all, however each strategy has its own merits for consideration. Keep an open mind and willingness to reject the status quo. For a company’s financial position to be restructured to levels expected by creditors, a serious evaluation of the turnaround strategy should be undertaken. The following are some potential turnaround strategies for consideration. Some are tested while others may not be frequently implemented and as you shall see others may be more innovative and emerging.

Financing Strategies

While the restructuring should not be limited to financing tactics, companies should vigorously pursue certain financing strategies. In a turnaround, all areas of the business should be evaluated as a potential source of capital. One area is working capital. Reviewing the payroll cycle. If the company is on a weekly payroll cycle change it to a bi-monthly cycle. This lessens the financial burden of financing payroll. Leverage certain assets as sources of capital such as receivables, inventories, and other unencumbered assets. Keep in mind fixed and certain intangible assets such as patents and trademarks. Historical precedent should not hamper the search for unencumbered resources.

Think “outside of the box”. Value exists all around the company. Recognize its existence and capitalize on its potential. The emerging Capital can be sourced from all assets, both tangible and intangible. Stated otherwise, all assets should be in play as a potential source of generating fresh capital.

The Way Forward

The financially distressed or at-risk companies must consider a planning process that will achieve consensus on the company’s baseline financial performance given current environmental factors and strategic priorities. This baseline should identify capital deficits and gaps in performance compared with credit market financial benchmarks.

Next, the company must develop a set of tactical options, encompassing the vital strategies to work toward achieving sustainable financial performance. Utilizing scenario planning with a combinations of options as well as varying assumptions responsive to key planning variables will enhance the decision making process.

Finally, a strategy map, based on the results of the scenarios, should be developed to return the company to sustainable financial performance. The strategy map must address the risks, related critical success factors and key performance indices (KPIs) to achieving the improved financial performance. This will form the basis for the development of change management strategies, including a communication plan.

Sustaining for the Future

Question the sustainability of a strategy is always critical. Action is most important:

  • Refresh the strategy on ongoing basis. As the market is dynamic, accelerate changes at the company.
  • Focus on the company’s core business offering and eliminate non-core business. You cannot be all things and to all customers.
  • Target solid margin generating businesses. Do not focus on achieving to be the market leader, focus on sustain profitability. The ability to cost shift or obtain subsidies will likely diminish, so being profitable on your own is important.
  • Consider joint ventures, particularly where you believe services are essential but sufficient scale is difficult to achieve.

Crisis or Opportunity

While the financial crisis and recession impaired the financial condition of many entrepreneurial controlled companies, it created the opportunity to step back and rethink the business model. The disruption in the financial markets and bank’s unwillingness to lend also made it imperative to be able to access credit on the strength of the organization’s own creditworthiness. This is the time to embark on a journey of financial restructuring. Unfortunately this will take time and patience, but the turnaround can be accomplished. The old saying of “no margin, no mission” is now “no financial strength, no access to capital.” These strategies can help achieve the financial strength necessary to be able to access to fresh capital, which will make it possible to fund investments as a means of achieving sustainable financial performance.


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Chapter 11 Bankruptcy: Know Fresh-Start Accounting in the Restructuring Process

Fresh-Start Accounting

Not since the Great Depression has the number of business bankruptcies been so prevalent. Bankruptcy is a dramatic experience. It is one thing reading about the recent large bankruptcies of AMR Corp., parent of American Airlines, Kodak, and MF Global Holdings. But for the business leader, understanding and planning a Chapter 11 bankruptcy to save their own company is a whole different “ball of wax.” Securing the professional advice from an accounting firm, not an individual practitioner is advisable. This is because several areas of specialization will be needed. A key question that will be asked is what the company will look like after all is said and done. After all the activities of debt restructuring and redistributing the ownership of the new company, accountants will use fresh start accounting, if it qualifies, to report the new balance sheet of the company. Because many business leaders are new to the process and never heard of fresh start accounting, and although the bankruptcy process and fresh-starting accounting are complex, a simplistic explanation of fresh-start accounting is attempted. Key expertise will be needed from the following areas that will effect the challenging bankruptcy process:

  • Bankruptcy and insolvency
  • Business valuations
  • Taxation
  • Accounting
  • Restructuring

What is Fresh Start Accounting?

Fresh-start accounting means, “the financial statements of the emerged from bankruptcy entity obtains a fresh presentation of its financial position with newly valued assets after the liabilities have been cancelled and/or adjusted.” Under certain conditions, it is recognized that the new users of the financial statements will be better served by re-valuating the balance sheet on a “fair value” basis after the confirmation of the bankruptcy. Accountants are required to follow promulgations of ASC 852 (formerly SOP 90-7) in establishing an opening balance sheet of the successor company.

Fresh start accounting benefits the new shareholders by creating a “clean” balance sheet and favoring a step up in the value of the assets. Business leaders can eliminate losses of the bankrupt company, which enables the new company to come out of bankruptcy stronger. Use of fresh-start accounting is not a standalone process. It is an integral part of the Chapter 11 reorganization procedure designed to create a solvent, operationally viable entity. Certain debts of the bankrupt company are restructured and/or discharged. Then, if the new company qualifies for fresh start accounting treatment, the balance sheet of the new company is reset.

Complexity of Fresh-Start Accounting

The American Institute of Certified Public Accountants developed strict rules for restating and a timeline for implementing fresh start accounting reporting. Determining the fair value of both tangible and intangible assets, the start date for fresh-start reporting, and the best practices in “push down” fresh start adjustments to subsidiaries and underlying ledgers must be understood. Valuation is most critical to the overall process. This can be an enormous burden on the financial, operational and systems teams as well as management. Completing this process will enable management to move forward and focus on the operations of the newly reorganized business.

Many attorneys and accountants boast having bankruptcy experience, however regarding fresh-start reporting, the requirements are beyond most of them. Practitioners and firms with experience in fresh-start accounting, along with other advisers will be needed to support the individual asset valuations to the company’s external auditors. Know that stakes are high; the situation tends to be demanding; and delays will come with penalties, which requires expertise in this area.

Criteria to Qualify for Fresh-Start Accounting

To qualified for fresh-start accounting two requirements must be met:

  1. The new company’s reorganization value must be less than the total claims and the post-bankruptcy petition liability, and
  2. The holders of the pre-bankruptcy confirmation-voting shareholders will receive less than 50 percent of the voting shares of the new emerge company.

These requirements were put into place to prevent solvent companies from filings and to prevent companies to exploiting the bankruptcy code to writing up the carrying value of the assets.

Pro Forma Fresh Start Reporting

The creation of a pro forma balance sheet using fresh start accounting includes two primary considerations:

  1. The recording of the pro forma effects as it relates to:
    1. Extinguish of debt
    2. Cancellation of the pre-bankruptcy common shares
    3. Estimation of the allowed settlement claims
    4. Issuance of the new capital (equity and debt)
    5. Adjusting the balance sheet items to the “fair value” the encompasses:
      1. Writing up and down the values of receivable, inventories, and fixed assets
      2. Adjusting and recording to the balance sheet any reorganization intangible assets
      3. Recording the present value of all surviving post-bankruptcy liabilities
      4. Adjusting any pensions and other post-retirement benefits
      5. Eliminating pre-bankruptcy retained earnings or deficits
      6. Cancellation of debt and any operating loss carry-forwards


For free online accounting mini course “” designed for entrepreneurs go to


Sample of Fresh Start Reporting

The following provides an example of Fresh-Start in practice:

Fresh-Sart Accounting Reporting

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The Entrepreneurial Distressed Business: Assessing the Business Failure Signs

The Entrepreneurial-Based Business

The competitive dominance of entrepreneurial driven companies have historically forged the path of economic growth. Now at the time when such dominance is needed with a vengeance for prosperity and employment,  such owners are working hard to stay afloat and survive especially after the recent financial meltdown and the great recession.  The fundamental issue is that tools and the conceptual frameworks that work for traditional businesses must be modified to meet the challenges, operations, and new business models of today’s entrepreneurial-based companies.

When dealing with an entrepreneurial-based business, when the company is in trouble, recognizing this fact will give the owner more options for dealing with the problem to save the business. However, by waiting too long, being in a state of denial, not taking decisive action will leave the entrepreneur with little options other than shutting down the business or bankruptcy. Furthermore, the longer the owner waits, the likelihood that the owner’s personal finances will be affected, in the event that the owner’s are personally liable for the business debts. This can leave the entrepreneur filing for personal bankruptcy protection.

Signs of Distress

Every business is different. So the signs that the business is in trouble may not be the same for one company compared to another. However, certain warning signals are clear. The business may be in trouble if:

  • Revenue has been trending down for the past several quarters and below the budget.
  • Demand for the products or services have dropped off.
  • Loss of one of more important customers and being unable to find replacements
  • Finding it harder to fund working capital needs as cash becomes tighter and tighter.
  • Struggling to fund payroll
  • Being unable to service the debt or even meeting just the interest
  • The company’s debts being turnover to collection agencies
  • Creditors asking for more cash collateral
  • The bank is unwilling to extend additional credit or threatening to call the loan.
  • Using collected payroll tax money to fund operations instead of sending it to the government. [A major no…no!]
  • Key managers and staff have begun to quit

Bad to Worse

With symptoms like the above, conditions can transform from bad to worse. For example

  • The IRS is beginning action to levy company bank accounts and following other avenues to enforce collections
  • Suppliers and creditors threatening to sue to collect owed moneys
  • Secured creditors liquidating collateral
  • Eviction notices received covering rented facilities
  • Key suppliers requiring cash, no credit

Entrepreneurial Options

Options that may be to the entrepreneur include:

  • Selling of the business in entirety
  • Liquidating the business through bankruptcy
  • Selling off parts of the business
  • Saving the business through restructuring or a bankruptcy reorganization

When the business is heading towards the “zone of insolvency,” the entrepreneur needs to first decide whether or not to stay in business. This is an important decision. Deciding on whether to cut off a cancerous limb to stop the infections or to treat it must be made.

Decision Factors

For an entrepreneur, emotions and egos must be set aside. Issues to be considered must include the welfare of the family and self.  Moreover, reflections must be made questioning:

  • The ability to raise fresh capital, and
  • The capacity to obtain the capabilities needed to turn around the business, which is like changing the direction of a battleship whether it is a small, medium size business or large corporation. Can enough momentum be directed toward business renewal?

Not all distressed businesses can be saved. Knowing if the company can be salvaged and which ones have little or no chance of survival is important.  The sooner that decision is made; the sooner steps can be taken to either begin the process of business turnaround or winding down the company.

Turnaround Basic Questions

Basic questions or requirements that are needed for a successful turnaround must have four characteristics:

(1)  Does one or more viable core businesses exist within the enterprise?

(2)  Can adequate bridge financing be obtained?

(3)  Does the company have sufficient organizational resources and skills

(4)  Can the company secured a turnaround manager (leader) to facilitate the daunting restructuring task?

Professional Advice

Having poured their hearts and souls in to the business, the entrepreneur must try to be objective about the prospects for the future. Although emotional attachment is there, they should seek professional advice from other entrepreneurs, lawyers, and accountants for recommendations of turnaround professionals. As a start, the membership of the Turnaround Management Association comprises of specialist (Certified Turnaround Professionals) in the area of business turnarounds.


For a  free online accounting mini course “Cracking the Accounting Code” designed for entrepreneurs go to


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Causes of Business Failure and Poor Leadership

Many papers and books have been written to study the origin of business distresses, its causes, consequences, and eventually, the best way to manage these organizations to avoid failure. The best way to learn how to manage a business turnaround is to study how mistakes were committed and what strategies were used that resulted in a turnaround success. Knowing what factors, including internal and external forces, that resulted in financial distress and crisis, as well as, how to avoid future business failures are critical.

Some companies experience traumatic pain, whereas other companies attempt to change direction to lessen the impact to land between the extremes of success and failure. Depending on the level of distress, the turnaround intervention will differ. Every company has a unique set of conditions that serves as serious problems to overcome.

Based on the pie chart[i], common reasons of business distress come from two forces, internal causes and external causes. Figure 1, shows some of the common reasons for business distress. The reasons are not ranked in accordance of severity, however to highlight some of the common threads the caused most distress situations.

During any stage of the business life cycle, potential failure is a threat that businesses normally face. A key is to recognize signs, the signals that the business may need to be restructured in order to turn around the situation.  Each situation tends to be unique, but have common elements.

Inept Leadership/Management Caused Business Failures

What is the most important responsibility of leadership? Simply put, leadership is to identify the biggest challenges to forward progress and to devise a coherent approach to overcome them.  This rule includes providing vision and motivation and to act as the change agent. Sounds nice. But in today’s competitive and volatile business climate, one cannot afford poor leadership, as business is not as usual.

Let us strip away at the excuses, explanations, rationalizations, and justifications for business failure; in the majority of cases it is because of management. In an honest analysis, it is plausible to say, “poor leadership” can lead towards corporate insolvency. Leaders will accept the kudos of business success; however most will not take the blame for business distress, which goes with the territory.

As a restructuring professional, it is plainly true that the number one cause of business failure is management. And in most cases it is because the leaders are “in a state of denial.” The common leadership reasons for business failure, and the roles and responsibilities they play are as follows:

  • Lack of Character: Without strong character attributes encompassing ethics, a leader cannot effectively lead without the trust, confidence, and loyalty required by employees. For most, title means little when the leader garners character flaws. And respect is earned. So a leader must remember, that “when the fish stinks at the head”, the fish is bad. With the crisis of confidence in Corporate America brought about by the boards of Enron, WAMU, etc., character plays a key role in the viability of a business failure.
  • Lack of Vision: The CEO must clearly define and communicate the corporate vision. Without vision, a flawed vision, or a poorly communicated vision, executive leadership has a problem. Moreover, if the vision is not in alignment with the corporate strategies and targets, the business will shortly be in trouble.
  • Poor Branding Poor branding generally means poor leadership. Brand equity, if declining, must be blamed on the leadership.  You must question whether the leadership abdicated their responsibility while an erosion of brand equity is taking place. It is a failure in the alignment of vision with strategy for allowing the deteriorating of a brand’s promise.
  • Lack of Execution: It all comes down to execution; the implementation to ensure a certainty of execution is primary for executive leadership. Leadership must focus on deploying the necessary resources to ensure that the largest risks are adequately managed, and/or that the biggest opportunities are exploited to avoid failure.
  • Flawed Strategy: A flawed strategy simply reveals weak leadership. While there are exceptions to every rule, companies tend to succeed by design and fail by default. Show me a company with a flawed strategy and I’ll show you an incompetent leader.
  • Lack of Capital: Even well capitalized ventures fail and severely under-capitalized ventures grow into dominant brands. A lack of capital can provide a socially acceptable excuse for business failure, but it is not the reason businesses fail. Cumulating working capital and permanent working capital is ultimately the responsibility of leadership. The amount of capital required to fuel a business is based upon how the business is operated. The reality of capital constraints is a factor leadership must recognize. If leadership squanders the opportunity to obtain sufficient capital, irrespective to capital formation, the business will feel the results.
  • Poor Management: The choice of recruiting, mentoring, deploying, and retaining management talent is up to leadership. Thus it is leaders blame if is fails to act to correct mistakes, change direction, or effective execute of strategy.  It is the job of leadership to recruit, mentor, deploy, and retain management talent.
  • Lack of Sales: The lack of coherent strategy, pricing, positioning, branding, distribution, or compensation impacts revenue. A lack of sales is ultimately attributable to a lack of leadership.
  • Toxic Culture: Culture is important in business, whether it is a culture of working at Google, IBM, or at the Red Cross. It is up to leadership to recognize and “cut out” the individual or individuals that poisons a culture of a business. Nothing stifles productivity and creates conflict like a toxic culture. Hiring management or employees with different cultures must be examined to determine if issues will be developed.
  • No InnovationRemember, even Kodak was innovative, but have faltered from global competition. Leaders must create a culture of innovation or they will fall on the innovation sword. Innovation must be mission critical. As an example, textile maker, Milliken & Co., leveraged innovation to effectively compete. The strong bias for innovation by great leaders constantly recreates businesses and generates new opportunities. Leaders that are slow moving towards innovation will doomed the business.
  • Not Tackling the Market: Good leadership tracks sound market opportunities, however pursuing the wrong market, or even following the right market improperly will lead to disaster.  But also sizing a business too fast, too slow, or yet at worst not designing a scalable business correctly lacks leadership.
  • Poor Professional Advice: All entrepreneurs and CEOs require quality professional advice. “No man is an Island,” so there is no excuse to having a “blind spot” to support limitations or added recommendations to strengthen ones’ knowledge or wisdom in making informed decisions.  It is pure arrogances not to recognize the need for advice that has led many companies down the wrong path.
  • Failure to Attract and Retain Talent: Surrounding ones self with great talent attracts more talent. It is the leaderships’ blame if the company does not have good talent. This requires recognizing talent when you see it. Then it is equally important to retain it, as other opportunities may steer talent away. If that takes place, leadership is the blame.
  • Competitive Awareness: It is critical to understand the competitive landscape to navigate the enterprise successfully. Not understanding, acutely, what the competitors are doing can disable any competitive advantage the company may have, that can play an important role in business decline.

Consequently, the characteristics of the leader and that of his/her key management play an important role in the decline of the business. Be it pure incompetency and/or the lack of interest in the business can lead to distress. Five principal factor for business distress include:

  1. Autocratic rule: Many companies that went into distressed had dominant and autocratic leaders that made all major decisions in the company and did not tolerate dissent. Although this is not to say that autocratic leadership is bad, a fine line exist between leaders that bring success and leaders that lead to distress.
  2. Ineffective board: Be it board of directors or board of advisors, weak board members that lack true business acumen, ethics, and ability to stand up to management can lead to trouble. Actively engaging in the planning, resource allocation, policy-making, and approval process oversight of the company is the responsibility of the board. But unfortunately, many boards are made of the “buddies” of the CEO, “rubber stamps” management’s assertions, maintain passive oversight, and/or just sit on the board for the status and the perquisites that goes with the position.
  3. Poor management: For some companies, management act as mere administrators, maintaining the status quo, avoiding the ever-changing business environment. Most do not realize that management is about change, change to survive in the current business environment. Such inability to accept even the proposition of change has led to even great old brands being swept aside towards the rubbish bins of lost value followed shortly by the company.
  4. Lack of Management Depth: Many companies’ management lack adequate skills. The lack of management depth tends to be found in companies that have been slowing declining.
  5. Neglect of Core Business:  As companies evolve they diversify in to other areas. Such diversification can lead to business distressed. This is what happened when Gil Amelio, then CEO Apple Computer struggled in an attempt to compete with IBM in the mid 1990s. Apple operated four business units, Macintosh, Information Applications and Peripherals, and “Alternative Platforms.” With six types of Mac computers, the company was bleeding cash. Upon the return of Steve Jobs, he radically simplified the company to its core business slashing all business units to the Macintosh and selling only one type Macintosh computer[ii]. Diversification means stretched resources and focus that can lead neglect of the core business.

Also know that hubris on the part of certain leaders have led companies down the wrong path to insolvency. Pursuing inappropriate, or high-risk strategies based on false premises, have brought down some of the most highly thought of companies.

  • Take the case of American International Group (AIG) that underwrote (what was considered very profitable) credit default swaps through its London based Financial Products Group. With the 2008 financial meltdown, the U.S. government was forced to bail out the company in order to protect the U.S. financial system.
  • Look at MF Global Holdings, then ran by former head of Goldman Sachs and former N.J. governor, John Corzine. In his veal for higher earnings to offset declining core revenue, and despite warnings from two chief risk officers, embraced Greek sovereign debt despite cautionary signs of the risk of default. Because the firm was unable to meet cash collateral calls made by counterparties, MF global was forced into bankruptcy     

[i] Richard P. Remelt, “Good Strategy Bad Strategy” Crown Business 2011.

[ii] James E. Schrager, Ed. “Turnaround Management: A Guide to Common Restructuring.” Institutional Investor 2002.


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Financial Risks that Can Lead to the “Zone of Insolvency” – Where are the Going Concern Opinions?

The 2007 credit crisis and the economic downturn revealed high-embedded financial risks of many entities that eventually led to significant bankruptcies. The high-embedded financial risks affected many entities ability to continue as going concerns because of the lack of liquidity and the availability of credit. So financial institutions such as Bear Sterns, Lehman Brothers, American International Group, and Washington Mutual all failed. With the inclusion of Fannie Mae, Freddie Mac, Citigroup and Bank of America, the U.S. government had to shore up the capital of systemically important institutions (“too big to fail”) with direct investments due to the high-embedded risks in the balance sheets of these institutions (Bair, 2010). What happened to the going concern assumptions by Auditors prior to the crisis? Nothing! Should not the risks of the valuation assertions of an entity’s balance sheet be measured and access for going concern issues if such risk can lead the entity into the “zone of insolvency”?

Using the going concern assumption is a fundamental principle in the preparation of financial statements by auditors. The assessment of an audit client’s ability to operate, as a going concern, is the responsibility of the client’s management, coupled with the appropriate applicable financial disclosure framework. The auditors must consider the appropriateness of the use of the going concern assumptions. The International Standard of Audit (ISA) No. 570, “Going Concern,” institutes the relevant requirements and guidance as to auditor’s consideration of the going concern assumption in the attestation report. According to IAASB (2011), “Auditors must remain alert throughout the audit for evidence of events or conditions that may cast significant doubt on an entity’s ability to continue as a going concern. We cannot stress enough the importance of professional skepticism and judgment in evaluating financial statement disclosures and the implications for the auditor’s report when a material uncertainty exists relating to events or conditions that, individually or collectively, may cast doubt on the entity’s ability to continue as a going concern.”

Consideration of the need for a going concern emphasis paragraph is a difficult matter of judgment. With the huge losses incurred by shareholders from impacted institutions, it creates a need for a heightened risk concern disclosure that would enhance the financial usefulness of the financial statements, especially after another high embedded risk bankruptcy, MF Global Holding, became insolvent in the fourth quarter 2011. Ironically in December 2011 (IFA, 2011), Professor Arnold Schilder, Chairman of the International Auditing and Assurance Standards Board (IAASB) sent a membership alert regarding going concern reporting, “… an entity may be experiencing a decline in its financial health, or may have material uncertainties arising from direct or indirect exposures to sovereign debt of distressed countries. Auditors are therefore encouraged to review the Alert and, importantly, the relevant requirements in the ISAs.” This alert came out after the MF Global holdings filing with its exposure to sovereign debt holdings.

Statement of Auditing Standards (SAS) No. 59 “The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern” requires auditors to evaluate conditions or events discovered during audit fieldwork that raise the validity of entities’ going-concern assumptions. For those auditors who are not satisfied with managements’ going-concern mitigation plans they are required to issue modified (unqualified) opinions. Unfortunately, auditors are not required to design audit procedures specifically to identify questions about the validity of an entity’s going concern assumptions unless issues were discovered contradicting the representation (Venuti, 2009).

Unfortunately the “expectations gap”[1] of auditing standards concerning the level of what a user envisions from audited financial statements and the anticipated performance by auditors of the financial statements continues to widen. SAS No. 59 superseded SAS No. 34 because of the perceived ineffectiveness of the old codification as to providing an effective warning of impending bankruptcies (Ojo, 2007). However the efficacy of even SAS No. 34 is questioned as none of the top ten 2011 bankruptcies received a going concern paragraph.

The fear that a going concern opinion can hasten the demise of a distressed company, which can lessen the chances that the client can receive fresh capital, is at the center of a moral and ethical dilemma. Should the auditor increase the pain of the troubled company or provide an unbiased opinion to stakeholders so that they can make informed decisions?  This is an open question.

The Solution

According to IAS 570, a detailed going concern analysis need not be required for an entity that has a history of profitability and access to financial resources. However with the most recent economic environment (the credit crisis and economic downturn) the landscape has changed. The validity of longstanding approaches no longer hold and undermines previous assumptions. Current economic uncertainties, issues around liquidity and credit risk create new assumptions. Therefore, auditors must approach an entity’s assumptions with the current market environment in mind. The solution is for auditors to supplement prior years reviews with robust analysis that deals with the current economic conditions.

Critical to this assessment, IAS 1 requires management to take, “into account all available informa­tion about the future, which is at least, but is not limited to, twelve months from the balance sheet date.” IAS 570 requires auditors to consider the same timeframe. But if the auditors feel that managements review time period is less than twelve months, the auditor is required to ask management to increase its review period up to one year after the balance sheet date. If management is unwilling to comply, the auditor is required to consider modifying the audit report as to a limitation to the audit scope period.

The auditor is required to assess management’s knowledge of event or conditions and related enterprise risks beyond the period of assessment as the significant doubt on the enterprise’s ability to remain as a going concern.


Bair, S. (2010). Speeches and Testimony Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Systemically Important Institutions and the Issue of “Too Big to Fail” before the Financial Crisis Inquiry Commission, Room 538 Dirksen Senate Office Building.

IAASB (2009). Staff Audit Practice Alert- Audit Consideration in Respect of Going Concern in the Current Economic Environment. International Auditing and Assurance Standards Board.

IFAC (2011). Economic Conditions Continue to Challenge Preparers and Auditors Alike; Focus Must Include Going Concern Assumption and Adequacy of Disclosures. Retrieved on February 5, 2012 from

Ojo, M. (2007). Eliminating the audit expectations Gap: Reality of Myth? Retrieved on February 6, 2012 from Paper No. 232, posted 07. November 2007 / 00:53

Vanuti, E.K. (2009). The Going-Concern Assumption Revised: Assessing a Company’s Future Viability. Retrieved on February 5, 2012 from

[1] The “expectations gap” is the difference between what users of financial statements, the general public perceives an attestation to be and what the auditor claims is expected of them in conducting an audit.


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