Project Updates
Going Concern and Liquidation Basis of Accounting
Last Updated: October 31, 2007 (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.
Objective
*Decisions Reached at Last Meeting
*Immediate Plans
*Board Meetings/Public Meeting Dates
Background
Contact Information
Objective
The objective of this project is to incorporate into FASB literature and clarify existing accounting and auditing guidance on an entity’s assessment of its ability to continue as a going concern and the liquidation basis of accounting. Specifically, the project would include guidance on: (1) management's responsibility for assessing an entity's ability to continue as a going concern, (2) what evidence should be considered in making the going concern assessment, (3) when it is appropriate to present financial statements using the liquidation basis of accounting, (4) the form and content of financial statements when an entity has adopted a liquidation basis, and (5) related disclosure requirements.
In the second quarter of 2007, the Board added to its agenda a project on going concern and liquidation basis of accounting.
*Decisions Reached at Last Meeting
The Board decided to:
- Remove both the going concern and liquidation basis of accounting and the subsequent events projects as separate projects from the Board’s agenda
- Include these projects in the codification and retrieval project.
The Board will discuss any changes to the guidance from the auditing literature that will appear in the codification at the next codification Board meeting.
*Immediate Plans
On September 19, 2007, the Board removed this project from its agenda.
*Board Meetings/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 Statement or Interpretation.
The following are links to the minutes for each meeting.
Background
Going Concern
The U.S. guidance for considering an entity’s ability to continue as a going concern is located in AICPA Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures, Section 341, "The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern," and states that the auditor has a responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time, not to exceed one year beyond the date of the financial statements being audited. This evaluation is based on knowledge of relevant conditions and events obtained from the auditing procedures performed during a financial statement audit. Constituents have expressed a need for accounting literature to clarify that management has the primary responsibility for assessing an entity’s ability to continue as a going concern and provide guidance on how that assessment should be performed.
Liquidation Basis of Accounting
Accounting and auditing guidance on the liquidation basis of accounting is limited to that provided in:
AICPA Statement on Auditing Standards Interpretation No. 9508, Reports on Audited Financial Statements: Auditing Interpretations of Section 508
Footnote 6 of AICPA Statement of Position 93-3, Rescission of Accounting Principles Board Statements
AICPA Technical Practice Aids, Section 9110, "Special Reports"
EITF Issue No. 88-25, "Ongoing Accounting and Reporting for a Newly Created Liquidating Bank"
SEC Financial Reporting Release 16, Rescission of Interpretation Relating to Certification of Financial Statements.
The principal concerns expressed by constituents are that the existing guidance on the liquidation basis of accounting does not provide enough guidance on when an entity should switch to a liquidation basis of accounting and how costs of liquidation should be presented in the financial statements.
Contact Information
Richard Paul
Practice Fellow
rcpaul@fasb.org
Sheri Wyatt
Practice Fellow
sewyatt@fasb.org
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