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Going concern — FASB tentatively decides to issue Accounting Standards Update

Published on: 08 May 2014

At its meeting yesterday, the FASB discussed the results of additional outreach and redeliberated the going-concern reporting model. (For information about the FASB’s June 2013 proposed ASU1 on going concern, see Deloitte’s June 27, 2013, Heads Up.) The Board tentatively decided to issue a final going-concern ASU that will apply to all entities. Furthermore, on the basis of the feedback received, the Board made tentative decisions on the following topics (see Deloitte’s March 28, 2014, journal entry for more information):

  • Look-forward period and assessment date — The Board reaffirmed its previous tentative decision to require a look-forward period of 12 months from the date the financial statements are issued or available to be issued. The Board tentatively decided that management’s going-concern evaluation on the assessment date, which is the date the financial statements are issued or available to be issued, should take into account relevant conditions or events that are known and reasonably knowable. This guidance would be more limiting than that in the ED, which states that an entity should “consider all information about conditions and events that exist at” the assessment date.
Editor’s Note: The Board received feedback from both the Private Company Council and the FASB’s Small Business Advisory Committee before yesterday’s meeting. The change in the look-forward period is expected to have a greater impact on private entities, which typically issue financial statements later than public companies and may not prepare rolling forecasts. However, the Board believed that the impact may not be too significant since, in current practice, auditors often evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern beyond the requirement of 12 months from the balance sheet date, especially when there is a going-concern presumption “close call” (i.e., it is not clear whether the substantial-doubt threshold was met by using the 12-month assessment period) or in the determination of whether other disclosures should be added to the financial statements. The Board also believed that users of private entities’ financial statements will often benefit from having a significantly longer look-forward period for which the going-concern presumption is assessed.
  • Transition and effective date — The Board tentatively decided that the proposed guidance would be effective prospectively for all entities for annual periods beginning after December 15, 2015, and interim periods thereafter. Early adoption would be permitted.
Editor’s Note: The Board discussed the possibility that auditing standards would not be updated to conform with the ASU by the effective date. While the ASU is generally consistent with auditing standards, the Board discussed two technical differences: (1) the existing substantial-doubt threshold is a lower threshold than the newly proposed “probable” threshold, as shown in academic studies (this could result in fewer going-concern auditor opinions upon adoption of the standard) and (2) the look-forward period in existing auditing literature is shorter than that in the current proposal. The Board stated that it would not expect the technical differences to result in a practical difference; thus, the Board would expect auditors to have a going-concern issue in the opinion if management discloses a going-concern issue in the notes to the financial statements.


1 FASB Proposed Accounting Standards Update, Disclosure of Uncertainties About an Entity’s Going Concern Presumption.  

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