Going‐Concern Reporting Now an Accounting Requirement

• DOI: http://doi.org/10.1002/jcaf.22023
• Date: 01 January 2015
• Published date: 01 January 2015
• Author: Oscar J. Holzmann,Paul Munter

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22023

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FASB

Oscar J. Holzmann

and Paul Munter

Going-Concern Reporting Now an

Accounting Requirement

Going back to the early days of

financial reporting, “going con-

cern” has been a concept embed-

ded in external reporting.

1 Even

so, the scant guidance on report-

ing on going-concern issues

historically has been found in

the auditing, rather than the

accounting, literature.

2

Several years ago, the Finan-

cial Accounting Standards

Board (FASB) added a project

on going concern to its agenda,

with the objective of bringing

the guidance on going-concern

reporting into the accounting

literature. Additionally, since the

International Financial Report-

ing Standards (IFRS) provide

going concern guidance, a sec-

ondary objective of the FASB

was to converge with IFRS, if

possible. This project was finally

completed with the recent issu-

ance of Accounting Standards

Update (ASU) 2014–15.

3

The final standard largely

parallels the existing audit-

ing guidance with two notable

exceptions: (1) it extends the

time period for the going-

concern evaluation beyond the

minimum period required in

the auditing literature, and (2)

it may require disclosure about

the entity’s going-concern con-

sideration even when there is

not substantial doubt about

the entity’s ability to continue

as a going concern. Because

the FASB has kept the Public

Company Accounting Oversight

Board (PCAOB) and Auditing

Standards Board informed of its

deliberations, it seems likely that

the auditing standard setters will

want to revise their guidance to

agree with the new FASB stan-

dard.

MANAGEMENT

RESPONSIBILITY FOR

ASSESSING THE ENTITY’S

ABILITY TO CONTINUE AS A

GOING CONCERN

Since the going-concern

guidance historically has been in

the auditing literature, there were

some who argued that it was the

auditors, rather than manage-

ment, who were charged with the

primary responsibility for assess-

ing an entity’s ability to continue

as a going concern. The new

ASU makes clear that manage-

ment of entities must perform

a going-concern assessment

by evaluating the ability of the

entity to meet its obligations.

This has important implications

for financial reporting.

First, this management

responsibility is consistent with

the fact that the financial state-

ments are those of management,

not the auditors. Therefore,

as with all other information

included in the financial state-

ments, the going-concern assess-

ment and related disclosures that

may be necessary are responsi-

bilities of management. Second,

because this is now an account-

ing requirement, management

will be responsible for making

a going-concern assessment

whenever it issues U.S. generally

accepted accounting principles

(GAAP) financial statements,

including for interim periods,

regardless of whether those

financial statements are audited,

reviewed, compiled, or there is

no external CPA involved in the

issuance of the financial state-

ments.

SUBSTANTIAL DOUBT

The new ASU amends the

Master Glossary of the FASB’s