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FASB Issues ASU No. 2014-15 to Help Reporting of Going Concern

Helping to disclose substantial doubt concerning a company’s ability to move forward as a going concern, the Financial Accounting Standards Board (“FASB”) has released Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Announced on Wednesday, the ASU provides principles and definitions to an organization’s management for decreasing diversity in disclosures that are currently made available in financial statement footnotes.

Presently, U.S. GAAP does not provide an organization’s management guidance regarding its responsibility to assess whether substantial doubt exists regarding the ability to continue as a going concern or to prepare related footnote disclosures. Instead, auditors are responsible for assessing an entity’s ability to continue as a going concern under AU-C 570. ASU 2014-15 will move this responsibility to management. However, the PCAOB and AICPA will need to consider whether any changes will be needed in the auditing guidance. For example, currently the auditing guidance measures going concern for a “reasonable period of time”. ASU 2014-15 will require management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued. The effective date was delayed until annual periods ending after December 15, 2016 to allow the auditing guidance to catch up with this change. ASU No. 2014-15 affects all companies and nonprofits and early application is allowed.

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