On June 26, 2013 the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Accounting Standards Update – Disclosure of Uncertainties about an Entity’s Going Concern Presumption. This proposed guidance is open for public comment through September 24, 2013.
Currently, there is no guidance in United States Generally Accepted Accounting Principles (U.S. GAAP) about management’s responsibilities in evaluating and/or disclosing going concern uncertainties. In addition, there isn’t any guidance in U.S. GAAP about when and how going concern uncertainties should be disclosed in an entity’s financial statement footnotes. The proposed guidance is intended to provide financial statement preparers with guidance on management’s responsibilities and disclosures about going concern uncertainties.
The proposed amendments would improve and incorporate into U.S. GAAP many of the principles that are currently in the auditing standards by:
1. Requiring management to evaluate going concern uncertainties at each annual and interim reporting period, which is currently an auditor responsibility.
2. Prescribing a threshold and related guidance for starting disclosures.
3. Requiring a 24-month assessment period after the financial statement date.
4. Providing a threshold for Securities Exchange Commission (SEC) filers to determine whether there is substantial doubt about an entity’s going concern presumption.
When evaluating going concern uncertainties, management would need to start providing footnote disclosures when it has determined that it is either more likely than not that the entity will be unable to meet its obligations within 12 months after the financial statement date without taking actions outside the ordinary course of business or known or probable that the entity will be unable to meet its obligations within 24 months after the financial statement date without taking actions outside the ordinary course of business.
If management determines that the disclosure threshold is met, an entity would be required to disclose the following in the financial statement footnotes:
1. The principle conditions and events that give rise to the entity’s potential inability to meet its obligations.
2. The possible effects those conditions and events could have on the entity.
3. Management’s evaluation of the significance of those conditions and events.
4. Mitigating conditions and events.
5. Management’s plans that are intended to address the entity’s
6. Substantial doubt about the entity’s going concern presumption – SEC filers only.
The entire proposed accounting standard update can be found here.
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