Dear Answerline

The financial meltdown of the stock market is wreaking havoc on many of my clients. This has raised several questions with regard to reports I will be issuing on the financial statements of those clients. First, on my June 30 clients, their investments have been marked to market as of that date, but should an additional loss be booked? Second, if the loss is not booked, is any disclosure required? Finally, this could cause some clients to be out of covenant with bank agreements and also raise doubts regarding going-concern. What disclosure would this require?
— Joe, the CPA

Dear Joe,
I hope you’re not sorry that you left the plumbing business to become an accountant due to the economy. As to your first question, this would be a type 2 subsequent event: “changes in circumstances occurring after the balance sheet date,” and would not be reflected as of the balance sheet date. With regard to disclosure, it would be your call to determine whether disclosure is sufficient to inform users of the uncertainties mentioned in your last question. If you believe that disclosure is inadequate, you should consider a GAAP departure paragraph in your report. The same holds true for your evaluation of the client’s ability to continue as a going concern.
— CalCPA’s A&A Answerline
(800) 922-5272 ext. 2355

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