Project Update

Going Concern

Last updated on May 8, 2014. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

*Project Objective
Due Process Documents
*Decisions Reached at Last Meeting
*Summary of Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information

*Project Objective

The Board received input indicating that the lack of guidance in U.S. GAAP and the varying interpretations of when and how going concern uncertainties should be disclosed under the auditing standards result in diversity in the timing, nature, and extent of existing footnote disclosures. The proposal is intended to provide preparers with guidance in U.S. GAAP on management’s responsibilities for evaluating and disclosing going concern uncertainties and, thereby, reduce existing diversity in footnote disclosures.

Due Process Documents

On June 26, 2013, the FASB issued a proposed Accounting Standards Update, Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Going Concern Presumption. The comment period ended on September 24, 2013.

On October 9, 2008, the Board issued an Exposure Draft, Going Concern, for a 60-day comment period. The comment period ended on December 8, 2008.

Exposure Draft 
Comment Letters
Comment Letter Summary

*Decisions Reached at Last Meeting (May 7, 2014)

The Board continued its redeliberations of its June 2013 proposed Accounting Standards Update, Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Going Concern Presumption, and made the following decisions:

The Assessment Date and the Look-Forward Period
  1. Management’s assessment of an entity’s ability to continue as a going concern should be based on relevant conditions or events known or reasonably knowable at the date the financial statements are issued (or for a nonpublic entity, the date the financial statements are available to be issued).
  2. The look-forward period (that is, the period over which the entity’s ability to meet its obligations is assessed) should be one year from the date the financial statements are issued (or for a nonpublic entity, the date the financial statements are available to be issued).
Nonpublic Entities
  1. The standard will apply to both public and nonpublic entities.
Transition and Effective Date
  1. All entities will apply the new requirements prospectively for annual periods beginning after December 15, 2015, and in interim periods thereafter. Early adoption is permitted.
Authorization to Proceed to a Ballot Draft
  1. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

*Summary of Decisions Reached to Date (March 26, 2014)

The Exposure Draft proposed that entities would begin disclosures of going concern uncertainties when certain early-warning disclosure criteria were met. In addition to early-warning disclosures, SEC filers would assess whether there is substantial doubt about the entity’s ability to continue as a going concern for a period of 24 months after the balance sheet date.

In light of the feedback received on the Exposure Draft, the Board decided not to require the proposed early-warning disclosures. Instead, the Board decided to pursue an approach that would require disclosures when there is substantial doubt similar to disclosures provided today under existing auditing standards.

Definition of Going Concern Presumption

The Board decided not to define the term going concern presumption, but rather to specify that the going concern basis of accounting would be used until an entity’s liquidation is imminent, which is consistent with the provisions of Subtopic 205-30 on the liquidation basis of accounting.

Substantial Doubt Definition, Assessment Period, and Frequency of Assessment

The Board decided that the definition of substantial doubt would incorporate a likelihood component defined using the term probable, as used in Topic 450 on contingencies. In addition, the Board decided that the assessment period for substantial doubt would be one year from the date the financial statements are issued (or, for nonpublic entities, the date financial statements are available for issuance). The Board affirmed the proposed Update’s requirement to assess substantial doubt at each annual and interim reporting period.

Information to Be Assessed Including Management’s Plans

The Board decided that information about conditions and events would be assessed as of the financial statement issuance date (or, for nonpublic entities, the date financial statements are available for issuance). The Board also decided that management should consider the mitigating effect of its plans to the extent it is probable that:
  1. Those plans will alleviate the adverse conditions within the assessment period.
  2. Those plans will be effectively implemented.
The Board asked that the staff draft the relevant provisions of the standard with respect to information to be assessed and management’s plans for the Board’s review before its next meeting.

Disclosures in Periods When Substantial Doubts Exist

The Board decided that when there is substantial doubt about an entity’s ability to continue as a going concern, the notes to the financial statements should disclose:
  1. A statement indicating that there is substantial doubt about the entity’s ability to continue as a going concern
  2. The principal conditions and events giving rise to substantial doubt
  3. Management’s evaluation of the significance of those conditions and events
  4. Any mitigating conditions and events including management’s plans.
Disclosures When Substantial Doubt Is Alleviated

The Board decided to require management to disclose in the financial statements when substantial doubt about an entity’s ability to continue as a going concern has been alleviated primarily by management’s plans. Those disclosures would include the principal conditions and events that initially raised the substantial doubt, and management’s plans that alleviated the substantial doubt, unless the information is disclosed elsewhere in the financial statements.

Nonpublic Entities

The Board decided that the disclosures would apply to both public entities and nonpublic entities.

*Next Steps

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot. Please see the Current Technical Plan for more information about the projected timeline.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.

*May 7, 2014 Board Meeting—Assessment Date and Look-Forward Period; Transition and Effective Date
March 26, 2014 Board Meeting—Project Scope and Objective
November 6, 2013 Board Meeting—Comment Letter Discussion
January 31, 2013 Board Meeting—Project Scope and Objective
November 7, 20121 Board Meeting—Project Scope and Objective
May 2, 2012 Board Meeting—Liquidation Basis of Accounting and Project Objective
February 15, 2012 Board Meeting—Liquidation Basis of Accounting
January 11, 2012 Board Meeting—Project Scope and Objective
October 26, 2011 Board Meeting—Project Scope and Objectives
December 1, 2010 Board Meeting—Subsequent Events and Limited Life Entities
November 10, 2010 Board Meeting—Issues Raised by External Reviewers
March 31, 2010 Board Meeting—Disclosure Threshold and Liquidation Basis
January 13, 2010 Board Meeting—Project Scope
June 3, 2009 Board Meeting—Analysis of Additional Constituent Outreach
February 18, 2009 Board Meeting—Comment Letter Discussion
August 27, 2008 Board Meeting—Codification Discussion
September 19, 2007 Board Meeting—Removal from Board agenda
May 30, 2007 Board Meeting—Add Project to Board agenda

1Note: Starting with the November 7, 2012 Board Meeting, this table will only list public meetings related to Going Concern.

Background Information

 The Board originally undertook this project to incorporate in U.S. GAAP certain accounting and reporting guidance that originated as auditing standards. In October 2008, the Board issued an Exposure Draft, Going Concern, which would have provided entities with guidance on the preparation of financial statements as a going concern and on management’s responsibility to evaluate uncertainties about an entity’s ability to continue as a going concern. The 2008 Exposure Draft would have required disclosures either when financial statements were not prepared on a going concern basis or when there was substantial doubt about an entity’s ability to continue as a going concern. The 2008 Exposure Draft would have carried forward the going concern guidance from the auditing literature subject to several modifications to align the guidance with IFRS.

The respondents to the 2008 Exposure Draft indicated that certain terminology and thresholds utilized in the proposed guidance needed to be further clarified, such as going concern and substantial doubt. Respondents also expressed other concerns about the proposal, including potential complexities on the indefinite nature of the proposed time horizon and the proposed guidance on evaluating all available information about the future. Furthermore, respondents highlighted the apparent omission of the disclosures contained in the auditing literature when an auditor’s initial substantial doubt concern is alleviated because of management’s plans.

Several respondents indicated that there was a need for guidance about when and how to prepare financial statements using the liquidation basis of accounting. The Board decided to address the liquidation basis of accounting as part of a separate project. The Board issued Accounting Standards Update No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting, in April 2013.

Since the issuance of the 2008 Exposure Draft, the Board has reassessed the objective of the going concern project at different times in response to feedback and developments in other projects, including the project on the liquidation basis of accounting and the project on liquidity and interest rate risk disclosures. In 2010, the Board modified the objective of the going concern project to propose earlier disclosures about going concern uncertainties. The resulting staff draft was not exposed to the public but was reviewed by a group of users, regulators, and auditors who indicated that the revised guidance may not be operable. In 2011, the Board considered but later rejected incorporating going concern uncertainty disclosures in the separate project about liquidity and interest rate risk disclosures. In May 2012, the Board decided to proceed with the project on going concern with the objective of providing an entity and its management with guidance on assessing uncertainties about an entity’s going concern presumption and related disclosures.

Contact Information

Daghan Or
Practice Fellow
dor@fasb.org

Bradley Deiso
Postgraduate Technical Assistant
bjdeiso@fasb.org