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With the COVID-19 pandemic well into its second year and the start of planning for the upcoming audit season, you may have questions about how to evaluate your company\u2019s going concern status. While some industries appear to have rebounded from the worst of the economic downturn, others continue to struggle with pandemic-related issues, such as rising inflation, along with labor and supply shortages. For some businesses, pre-pandemic conditions may never return, which can make it exceptionally difficult to project future performance.<\/p>\n
How auditing standards have changed<\/strong><\/p>\n Financial statements are generally prepared under the assumption that the entity will remain a going concern. That is, it\u2019s expected to continue to generate a positive return on its assets and meet its obligations in the ordinary course of business.<\/p>\n Under Accounting Standards Codification Topic\u00a0205, Presentation of Financial Statements \u2014 Going Concern<\/em>, the continuation of an entity as a going concern is presumed as the basis for reporting unless liquidation becomes imminent. Even if liquidation isn\u2019t imminent, conditions and events may exist that, in the aggregate, raise substantial doubt about the entity\u2019s ability to continue as a going concern. Today, the responsibility for the going concern assessment falls on management, not the company\u2019s external auditors.<\/p>\n In addition, the time period that the assessment must cover has been extended. Previously, the determination of an entity\u2019s ability to continue as a going concern was based on expectations about its performance for a one-year period from the date of the balance sheet. Now, under Accounting Standards Update No.\u00a02014-15, Presentation of Financial Statements \u2014 Going Concern: Disclosure of Uncertainties About an Entity\u2019s Ability to Continue as a Going Concern<\/em>, the assessment is based upon whether it\u2019s probable that the entity won\u2019t be able to meet its obligations as they become due within one year after the date the financial statements are issued \u2014 or available to be issued \u2014 not the balance sheet date. (The alternate date prevents financial statements from being held for several months after year end to see if the company survives.)<\/p>\n When disclosures are required<\/strong><\/p>\n In situations where substantial doubt exists, management then must evaluate whether its plans will alleviate substantial doubt. That is, is it probable that the plans will be implemented, and if so, will they be effective at turning around the company\u2019s financial distress?<\/p>\n Disclosures are required indicating that either:<\/p>\n Though management is responsible for making this assessment, auditors will request appropriate evidence to support the going concern disclosure. For example, detailed financial statement projections or a written commitment from a lender or affiliated entity to fully cover the entity\u2019s cash flow requirements might help substantiate management\u2019s assessment. If management doesn\u2019t perform a sufficient evaluation, the auditing standards may require the auditor to report a significant deficiency or a material weakness.<\/p>\n We can help<\/strong><\/p>\n If your business is continuing to struggle during the pandemic, contact us to discuss your going concern assessment for 2021. Our auditors can help you understand how the evaluation will affect your balance sheet and disclosures.<\/p>\n \u00a9 2021<\/em><\/p>\n <\/body> With the COVID-19 pandemic well into its second year and the start of planning for the upcoming audit season, you may have questions about how to evaluate your company\u2019s going concern status. While some industries appear to have rebounded from the worst of the economic downturn, others continue to struggle with pandemic-related issues, such as […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,7,10],"tags":[8,11,12],"class_list":["post-15716","post","type-post","status-publish","format-standard","hentry","category-aa","category-articles","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15716","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15716"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15716\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15716"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15716"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15716"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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