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FASB’s Going Concern Amendment to Affect PCAOB Standards

In the coming weeks, the Financial Accounting Standards Board (“FASB”) plans to release an amendment that requires struggling companies to inform investors regarding their chances of surviving. Entitled proposed Accounting Standards Update No. 2013-300, Presentation of Financial Statements (Topic 205)—Disclosure of Uncertainties about an Entity’s Going Concern Presumption, the update is in response to investors and regulators who believed auditors issued going concern reviews of companies after the stock price mirrored the market’s knowledge of their pending demise. Per the FASB’s final update to U.S. GAAP, a company will be required to add in its financial statement footnotes when “substantial doubt” occurs regarding its survival. Currently, the requirements to consider Going Concern sit in the auditing guidance.

As the FASB prepares for its update release, Public Company Accounting Oversight Board (“PCAOB”; “the Board”) officials expect their standards to also be modified. Currently, the PCAOB’s standards do not include a definition for “substantial doubt.” Further, unlike the FASB, the Board’s standards apply to audits of U.S. companies and foreign businesses that use international financial reporting standards (IFRS) when filing with the U.S. Securities and Exchange Commission (“SEC”). The PCAOB’s concern is competing with a U.S. GAAP framework that approaches going concern assessments differently than IFRS reporting.

Hoping to avoid a conflict of disclosure requirements, American Institute of Certified Public Accountants’ Auditing Standards Board (“ASB”) Chair Bruce Webb supports having an auditor complete an emphasis matter paragraph report to communicate what management says. Webb also expects the ASB to address the matter, but mentioned a revision of the reporting requirement could impact the SEC’s rules and regulations.

The FASB intentionally selected a later effective date for the new ASU as they were aware that the auditing standards would be impacted by the change.

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