Fewer public companies are being flagged by their auditors as going concern risks, but fewer are climbing out of the going concern stigma as well. The latest data from Audit Analytics says the number of new going concerns in 2011 was the lowest seen in 12 years of tracking the data, yet it also shows 2011 produced the lowest number of companies shedding the going concern finding from the year before.

Nearly 18 percent of all 2011 audit opinions likely will contain a warning from auditors that they have doubts about the company's ability to remain in business as a going concern in the coming year, Audit Analytics estimates. The firm says based on the number of 2011 filings to date and the rate of going concern opinions filed in 2010, it expects a total of 2,658 audit opinions to contain the warning by the time all 2011 filings are submitted. The research firm's latest going concern report says warnings peaked in 2008 at 3,347, but have tapered off each year since. The 2011 number is still higher than the lowest years in 2003 and 2004 when going concern findings hovered at 2,553 and 2,555.

Of the 2,658 going concern opinions that are expected when the 2011 filings are complete, Audit Analytics says 545 of them will be for companies that were not previously flagged by their auditors. The number of new going concern opinions peaked in the height of the financial crisis, with 1,177 companies getting the warning in 2007 financial statements, and have tapered off ever since.

The number of companies emerging from the brink of collapse, however, is declining, the firm says. From 2010 to 2011, only 198 companies, or 21 percent, filed clean financial statements after getting the going concern warning the year before, while 729 companies filed no further financial statements, suggesting their listings disappeared. In the prior cycle, 279 companies pulled back into clean financial statement territory and 569 perished, for an improvement ratio of about one-third.

In assessing why companies were most likely to get the going concern warning in 2011, Audit Analytics says reports most often cited recurring net or operating losses. Reports as cited concerns over development stage companies, a lack of adequate working capital, net losses since the inception of the company, and the absence of significant revenues.

The Public Company Accounting Oversight Board and the Financial Accounting Standards Board both are kicking around ideas on how to write new auditing and accounting standards around the going concern disclosure. FASB has considered a number of different ideas on how to get more information into financial statements to give investors warning signs when companies are headed for trouble.

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