Standard on Going Concern to be Published in June
Approved by a 5-2 vote, the Financial Accounting Standards Board (“FASB”) will publish a standard requiring management to make a quarterly evaluation of a company’s financial well-being. Per the accounting standard, companies must disclose in its financial statement and to investors if there is “substantial doubt” regarding its survival. The FASB anticipates publishing the standard in June.
The May 7th decision ends a near half-decade dispute regarding how generally accepted accounting principles (U.S. GAAP) can attain doubts concerning a company’s survival odds. Currently, the external auditor handles such uncertainties for a company. According to critics, however, the downside to this method is the decision on a company’s going concern is often made too late. With the approved standard, responsibility will now be shifted to the company’s management.
Furthermore, the FASB will require companies to look ahead 12 months from the financial statement’s issuance date to decide whether or not doubts regarding their future exist. The Accounting Standard Update will be effective for annual reporting periods after December 15, 2015, and subsequent quarterly periods. There will be no delay in effective date for private companies. Early adoption of the standard will be permitted.