Final Stds on Going Concern, Sub Events To Be Eff. June 15
Biggest Change from Current Practice: Removal of Bright Line for Going Concern
The standards generally move current requirements for assessing whether an entity is a going concern, and assessing the reporting impact of subsequent events- which are currently set forth in auditing literature originally established by the AICPA (and now, for public companies, by the PCAOB) -and moving those standards into FASB accounting literature or Generally Accepted Accounting Principles (GAAP). [NOTE: The action of moving these standards into the accounting literature is also related to FASB's codification project, in which all of GAAP will be codified into one searchable source. As noted in FASB's Dec. 2008 press release, the Codification is expected to be launched on July 1, 2009, following an extended verification period which began on Jan. 15, 2008.]
However, more than just moving existing standards for Going Concern and Subsequent Events from the auditing literature to the accounting literature, certain changes are being made to the current requirements, most notably, that the current requirement to assess going concern for a 12 month period is being changed to align more closely with international standards which do not have a 12 month bright line.
On this point, FASB board members were sympathetic with comment letters received on the Exposure Draft, saying it would be difficult to apply an ‘indefinite’ or ‘infinite’ time period to assess going concern, therefore the board agreed to use wording such that it would not appear their intent is for companies and their auditors to assess a companies’ likelihood of remaining a going concern over an ‘indefinite’ period.
However, the board also decided not to revert to a bright line 12 month (or some other number of months, such as 18 month) period, choosing to remain with a more principles based approach, and to address the concern that companies not make the assessment by considering, e.g. a 365 day window, if they know something significant is reasonably expected to happen on day 366 which would impact their assessment of the entity's ability to continue as a going concern.
To address concerns of commenters that the period to assess whether or not an entity is a going concern shoudl not be an 'indefinite' period of time, FASB agreed to insert wording in the final standard on Going Concern similar to this wording shown as alternative D in today's board handout .
Read more about the upcoming changes to the Going Concern and Subsequent Events standards here .