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AICPA Proposes Going Concern Evaluation Auditing Standard

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Jul 22nd 2016
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The American Institute of CPAs (AICPA) has released a proposed Statement on Auditing Standards (SAS), The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern.

It’s intended to apply to audits of financial statements prepared under various accounting frameworks and is written in a “neutral accounting framework manner,” the proposal states. If approved, it would supercede SAS No. 126 by the same title released by the AICPA Auditing Standards Board (ASB) in 2012.

The proposed SAS would take effect for audits of financial statements for periods ending on or after Dec. 15, 2017, and for interim periods after that.

The ASB considers the most significant proposed changes to involve audits of special-purpose frameworks, and audits of single financial statements and specific elements, accounts, or items of a financial statement.

The proposal also includes amendments to Clarified Auditing Standard AU-C Section 930, Interim Financial Information.

The “issue for consideration” is the applicability of AU-C Section 570 (SAS No. 126) to audits of single financial statements and specific elements, accounts, or items of a financial statement.

“The application guidance should include as an example that the requirement to consider fair presentation includes an evaluation of whether disclosures related to risk and uncertainties are needed to achieve fair presentation,” the proposal states. “This evaluation should be performed without connecting to the conclusion of whether there is substantial doubt about the entity’s ability to continue as a going concern as set out in AU-C Section 570.”

The proposal discusses that the going concern basis of accounting may be relevant to special-purpose financial statements. As it relates to audits of single financial statements and specific elements, accounts, or items of a financial statement, the proposed SAS is silent as to whether it applies.

“This is consistent with extant AU-C Section 570; however, the ASB acknowledges that paragraph .01 of AU-C Section 805 states that ‘AU-C sections 200–700 apply to an audit of financial statements and are to be adapted as necessary in the circumstances when applied to audits of other historical financial information,’” the proposal states.

So, here’s what the ASB wants to know from respondents:

  • Should the standards be amended to indicate that AU-C Section 570 is applicable to all audits of single financial statements and specific elements, accounts, or items of a financial statement? If yes, how would the auditor apply the requirements of AU-C Section 570 (that is, would specific procedures need to be performed), including concluding whether substantial doubt exists about an entity’s ability to continue as a going concern?
  • If respondents believe that AU-C Section 570 is not applicable, is the application guidance concerning risks and uncertainties sufficient in considering whether appropriate disclosures have been made?

Responses are due no later than Sept. 5 and should be sent to Sherry Hazel at [email protected].

To help respondents, a matrix document that compares the proposal to ISA 570 and the existing AU-C Section 570 is available here.

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