Discussant's response to SAS 34 procedures vs. forecast reviews: The gap in GAAS;

              Discussant's Response to
SAS 34 Procedures vs. Forecast Reviews:
The Gap in GAAS
William R. Kinney, Jr.
University of Iowa
Let me begin by reminding everyone that my comments are conditioned by my background as a professor. I am not constrained by practical experience with going-concern qualifications, and I do not face legal liability for audit deficiencies with respect to going concerns. Thus, my comments may seem naive since they are based on only my reading of SAS 34 and not on attempts to judiciously apply it.
My interpretation of the words of SAS 34 differs from that expressed by Bob Kay. Also, my interpretation is that SAS 34 has clarified and extended the meaning of SAS 2.1 presume that the Auditing Standards Board (ASB) wanted to clarify the meaning of going concern qualifications and specify desirable audit procedures. Whether the ASB has succeeded in changing the requirements and meaning in the accounting (and legal) practice environments is another question.
My comments on Bob Kay's paper will be organized into three related categories. These are:
1. An alternative interpretation of the reporting focus of SAS 34.
2. An alternative interpretation of audit procedures required or implied by SAS 34, and
3. The elimination of the "subject to" qualified opinion as it relates to going-concern situations.
Reporting Focus of SAS 34
The focus of the reporting requirements of SAS 34 is clearly on re-coverability and classification of assets and classification of liabilities, and not on the entity's ability to continue in existence per se. In paragraph 1, SAS 34 states "When the continued existence of an entity is imperiled, there is heightened concern about the recoverability and classification of recorded asset amounts and the amounts and classification of liabilities." That is, the auditor may question the basis of accounting or whether generally accepted accounting principles are appropriate or a liquidation basis is required. The auditor has no responsibility to search for evidential matter relating to an entity's continued existence. If the auditor does not become aware of any contrary information, then under APB Statement No. 4, he or she may assume that the entity will continue as a going concern and not question whether a liquidation basis is the
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