The warning and the warned

The going-concern opinion is in a normal time – when the economy is in a steady state of progress – a more or less subjective thing. A company’s auditors determine that its financial runway for the coming 12-month period is at risk of falling short. The determination is based on projections, which are based on expectations and estimates.

At least in theory, but maybe also in practice, a going-concern opinion from the auditors can be disruptive to the company’s operation and liquidity, almost as though self-fulfilling, as a warning signal like a brand in interactions with the marketplace. It’s something to be avoided, if possible.

In a normal time – but all times have their little quirks, depending on whom you talk to – it’s possible at least to judge a financial forecast on the basis of conservatism or aggressiveness, assuming that markets and the economic atmosphere are in a reasonably defined state. The risk of falling short in such a state – and doing so within the arbitrary one-year timeframe – although the magnitude of such a risk can be and is debated, the argument will nonetheless take place within some semblance of parameters, some form of reasonable standard.


In an abnormal time, such as, for instance, when an economy itself is the subject of going-concern discussion, the relative status of one micro element within this macro flux can be of even greater (arguably, absolute) subjectivity. If everyone is in the same boat, what does a warning even mean? I think the warned already kind of know, and more than likely are themselves feeling the onslaught. The red flag is almost presupposed and may just be a matter of degree. Like, “your concern is going more or less than mine,” or, “as you go I go and let’s make the most of it together.”

The relativity is perhaps what matters most, and the orders of magnitude.

The relative connectedness and equivalence, perhaps, is also what proves to be the saving grace… as we evolve from an environment of cutthroat competition to one of self-interested cooperation. This will anyway be something to watch.

Fortune Term Sheet