New Challenges in a Delicate Process: Difficulties Presented by FASB's Going-Concern Standard May Lead Non-SEC Companies Away from GAAP Financial Statements

By Illuzzi, Kristy | Journal of Accountancy, March 2015 | Go to article overview

New Challenges in a Delicate Process: Difficulties Presented by FASB's Going-Concern Standard May Lead Non-SEC Companies Away from GAAP Financial Statements


Illuzzi, Kristy, Journal of Accountancy


A new look-forward period, disparities with audit guidance, and a new triggering threshold are among the many challenges CPAs will have to consider as FASB's new going-concern standard takes effect. Some organizations may even choose to avoid using GAAP for their financial statements to bypass this challenge.

FASB Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements--Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern, officially codifies management's going-concern responsibilities into GAAP The standard establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and whether to provide related disclosures. The standard is effective for years ending after Dec. 15, 2016, with early adoption permitted.

The look-forward period is one of the most significant changes in the new guidance. Current audit guidance differs from the new standard on the definition of the look-forward period. AU-C Section 570, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern, defines the look-forward period to end one year from the financial statement date. The new FASB guidance requires consideration of the entity's ability to continue as a going concern one year from the financial statement issuance date (or at the date that the financial statements are available to be issued, when applicable).

Going-concern issues disproportionately apply to smaller entities. The frequency of going-concern emphasis-of-matter opinions for SEC registrants from 2000 to 2010 was 36.7% among companies with market capitalization of $75 million or less, and 3.7% for companies with market capitalization between $75 million and $500 million, according to a study published in 2013 in the American Accounting Association's Auditing: A Journal of Practice & Theory.

Since non-SEC registrants do not generally have statutory obligations to file timely financial statements using GAAP, some of these entities and their independent CPAs have managed risks associated with going concern by waiting to issue financial statements until shortly before or after one year from the financial statement date. Others did not believe that going-concern responsibilities ended one year from the financial statement date. The new standard's look-forward period eliminates this diversity, but it is uncertain if non-SEC registrants will desire to consider the required going-concern evaluation when the results of the going-concern evaluation are unclear. …

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