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Under U.S. Generally Accepted Accounting Principles (GAAP), financial statements are normally prepared based on the assumption that the company will continue normal business operations into the future. When liquidation is imminent, the liquidation basis of accounting may be used\u00a0instead.<\/p>\n
It\u2019s up to the company\u2019s management to decide whether there\u2019s a so-called \u201cgoing concern\u201d issue and to provide related footnote disclosures. But auditors still must evaluate the appropriateness of management\u2019s assessment. Here are the factors that go into a going concern assessment.<\/p>\n
Substantial doubt and potential for mitigation<\/strong><\/p>\n The responsibility for making a final determination about a company\u2019s continued viability shifted from external auditors to the company\u2019s management under Accounting Standards Update (ASU) No.\u00a02014-15, Presentation of Financial Statements \u2014 Going Concern (Subtopic\u00a0205-40): Disclosure of Uncertainties About an Entity\u2019s Ability to Continue as a Going Concern<\/em>. The updated guidance requires management to decide whether there are conditions or events that raise substantial doubt about the company\u2019s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, to prevent auditors from holding financial statements for several months after year end to see if the company survives).<\/p>\n Substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it\u2019s probable that the company won\u2019t be able to meet its current obligations as they become due. Examples of adverse conditions or events that might cause management to doubt the going concern assumption\u00a0include:<\/p>\n After management identifies that a going concern issue exists, it should consider whether any mitigating plans will alleviate the substantial doubt. Examples of corrective actions include plans to raise equity, borrow money, restructure debt, cut costs, or dispose of an asset or business\u00a0line.<\/p>\n Aligning the guidance<\/strong><\/p>\n After the FASB updated its guidance on the going concern assessment, the Auditing Standards Board (ASB) unanimously voted to issue a final going concern standard. The ASB\u2019s Statement on Auditing Standards (SAS) No.\u00a0132, The Auditor\u2019s Consideration of an Entity\u2019s Ability to Continue as a Going Concern<\/em>, was designed to promote consistency between the auditing standards and accounting guidance under U.S.\u00a0GAAP.<\/p>\n The updated guidance requires auditors to obtain sufficient appropriate audit evidence regarding management\u2019s use of the going concern basis of accounting in the preparation of the financial statements. It also addresses uncertainties auditors face when the going concern basis of accounting isn\u2019t applied or may not be\u00a0relevant.<\/p>\n For example, SAS No. 132 doesn\u2019t apply to audits of single financial statements, such as balance sheets and specific elements, accounts, or items of a financial statement. Some auditors contend that the evaluation of whether there\u2019s substantial doubt about a company\u2019s ability to continue as a going concern can be performed only on a complete set of financial statements at an enterprise\u00a0level.<\/p>\n Prepare for your next audit<\/strong><\/p>\n With increased market volatility, rising inflation, supply chain disruptions, labor shortages and skyrocketing interest rates, the going concern assumption can\u2019t be taken for granted. Management must take current and expected market conditions into account when making this call \u2014<\/em> and be prepared to provide auditors with the appropriate documentation. Contact us before year end if you have concerns about your company\u2019s going concern assessment. We can provide objective market data to help evaluate your situation.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> Under U.S. Generally Accepted Accounting Principles (GAAP), financial statements are normally prepared based on the assumption that the company will continue normal business operations into the future. When liquidation is imminent, the liquidation basis of accounting may be used\u00a0instead. It\u2019s up to the company\u2019s management to decide whether there\u2019s a so-called \u201cgoing concern\u201d issue and […]<\/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-16128","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\/16128","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=16128"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16128\/revisions"}],"predecessor-version":[{"id":16308,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16128\/revisions\/16308"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16128"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16128"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16128"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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