(February 9) – “It’s a going concern. But where is it going — out of business? Look closely at nearly any company’s annual financial statements, and you’ll notice an obscure yet important qualifier,” writes Jonathan Veil in today’s Wall Street Journal.

“They are prepared on the presumption that the company is a “going concern” — that is, that it will continue as a business for at least another 12 months. And if an auditor has substantial doubt about a client’s ability to continue as a going concern, it must say so in its report on the company’s financial statements.

“Investors often take those warnings, commonly called ‘going-concern clauses’ to mean ‘run for the hills’ and the inclusion of one can kill a company’s plans to go public. Next month, as most companies file annual reports, dozens of flailing dot.coms are expected to disclose they have been tagged with that dreaded boilerplate.

“But what about last year’s crop of failed dot.coms? Of the 10 publicly owned dot.coms whose financial problems forced them to cease operations or file bankruptcy-court proceedings, only three had going-concern clauses at the time they shut down.

“And one of those three didn’t have a going-concern clause in its annual report last spring, but instead got one from its auditor three months later — after the stock had tanked.

“Among the flameouts that sported clean auditor opinions: Pets.com, Quepasa.com and MotherNature.com. All 10 were audited by Big Five accounting firms. In addition to these 10 publicly traded companies, dozens of others that are still operating were de-listed from stock exchanges, and many closely held dot.coms also filed for bankruptcy.

In retrospect, critics say, there were early signs that the businesses weren’t sustainable, including their reliance on external financing, rather than money generated by their own operations, to stay afloat.