• Accounting News Roundup: Substantial Doubt About Sears and PwC Settles | 03.23.17

    By | March 23, 2017

    I sincerely hope PwC’s lawyers gave MF Global the right envelope.

    Substantial doubt

    Going concern opinions are pretty rare, but rarer still is a going concern opinion from a company’s management but not one from the auditor. Francine McKenna reports at MarketWatch that that’s exactly what happened with Sears Holdings and Deloitte yesterday, explaining the background:

    Deloitte’s willingness to issue an audit opinion that does not mention any going-concern issue may just be a difference of opinion with Sears executives. The company may want to be more conservative about whether or not it can make it through the next twelve months.

    Alternatively, Deloitte may have been unable or unwilling to evaluate the impact of plans the company cited that were initiated after Jan. 28, its cutoff, such as a restructuring program targeted to deliver at least $1 billion in annualized cost savings in 2017, an amendment to an existing domestic credit facility or $100 million in commercial paper issued to meet short-term liquidity needs.

    That Sears took a different line owes to a rule change in Aug. 2014, when accounting standard setters issued a new mandate requiring company executives to also assess whether conditions or events, considered as a whole, raise substantial doubt about a company’s viability within one year after the financial statements are issued.

    Isn’t it a little odd that Sears management came to a more conservative conclusion than Deloitte? If Sears is just employing some reverse psychology on themselves (“I doubt this is going to work, guys.”) is Deloitte just calling BS on them? That seems…strange? Or if Deloitte is “unable or unwilling to evaluate the impact of plans” that means they think Sears could survive the next 12 months if they simply did nothing different? I’m fascinated and confused all at the same time.

    PwC on trial

    If you had March 23rd as the settlement date in your MF Global/PwC trial pool, then you are a winner. A spokesman for the plaintiffs has informed Going Concern that “the matter has been settled to the mutual satisfaction of the parties.” As has become custom in these situations, the settlement amount is secret. Stay tuned for more.

    Hearings

    If you still haven’t gotten your fill of political grandstanding this year, Donald Trump’s nominee to chair the SEC, Jay Clayton, has his confirmation hearing today.

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    Beech Valley Solutions has immediate need for a CPA in Chicago.

    Previously, on Going Concern…

    I wrote about robot auditors. In Open Items, someone is asking about The Siegfried Group.

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    • dumpus

      To be fair, Sears ain’t paying Deloitte’s fees for them to break the news to the world (as if) that Sears is dangling off the precipice of the cliff.

      I’m sure this raises a more fundamental question of whether or not auditors are (or should) be in a position to in essence throw the first shovel of dirt on the casket. In the case of Sears, everyone in the world knows that they’re running on borrowed time; who is really in the best position to decide on pulling the plug, management or the auditor? Rendering a going concern opinion is often a death knell for an organization, and will trash any ongoing efforts of management to right the proverbial ship. There’s an inherent conflict in the question of a going concern between the auditors and the shareholders; the auditors can sink the ship in spite of management and in spite of shareholders, both of whom may be comfortable with the status quo.

    • David G.

      Be clear, Sears never says that they will not continue as a going concern. They say operations indicate an issue with being a going concern but they have sufficient liquidity plans in place (to get them at least 12 months) and therefore do not believe they have a going concern issue. Deloitte obviously agrees with this assessment as there is no going concern opinion. New FASB rules require this disclosure even if there are sufficient mitigating factors so they were forced to put this disclosure out. This assessment is a little surprising from an accounting source (have seen this over and over in the press), but be clear if FASBs new rules were required in the past, Sears would likely have been disclosing this same fact pattern for years. If management concluded mitigating factors were not enough to get them 12 months, there is zero chance Deloitte wouldn’t agree.

    • sludgemonkey

      Those bastards at PwC should hang for this MF Global scandal, anything less is tragic.