FASB PROPOSES IMPROVEMENTS TO FINANCIAL REPORTING OF GOING CONCERN UNCERTAINTIES
Stakeholders Asked to Provide Comments by September 24, 2013Norwalk, CT, June 26, 2013—The Financial Accounting Standards Board (FASB) today issued a proposal intended to improve disclosures of uncertainties related to an organization’s ability to continue as a going concern. Stakeholders are asked to review and provide comments on proposed Accounting Standards Update, Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Going Concern Presumption, by September 24, 2013.
“Stakeholders have expressed concerns about diverse practices that have arisen in the financial statement footnotes about uncertainties surrounding an organization’s ability to continue as a going concern—that is, its ability to continue to operate such that it will be able to realize its assets and meet its obligations in the ordinary course of business,” stated FASB Chairman Leslie F. Seidman. “This proposal seeks to address those concerns by clarifying management’s responsibilities about evaluating and disclosing going concern uncertainties, while improving the timeliness and quality of footnote disclosures about them.”
Under U.S. generally accepted accounting principles (GAAP), financial statements are prepared under the inherent presumption that the reporting organization will be able to continue as a going concern. The going concern presumption is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.
Currently, there is no guidance in U.S. GAAP about management’s responsibilities in evaluating or disclosing going concern uncertainties, or when or how uncertainties should be disclosed in an organization’s footnotes. The proposal would provide this guidance, thereby reducing diversity in financial reporting about these uncertainties, while improving the timeliness and quality of footnote disclosures about them. It would do so by incorporating many of the principles that are currently in the auditing standards, and by (1) requiring management to evaluate going concern uncertainties more frequently, (2) prescribing a threshold and related guidance for starting disclosures, (3) requiring an assessment period of 24 months after the financial statement date, and (4) providing a threshold for SEC filers to determine whether there is substantial doubt about an organization’s ability to continue as a going concern.
The proposed guidance on the disclosure of going concern uncertainties would apply to all reporting organizations, including public companies, private companies, and nonpublic not-for-profit organizations. Additionally, a public company that is a Securities and Exchange Commission (SEC) filer would be required to evaluate and determine whether there is substantial doubt about its ability to continue as a going concern and, if there is substantial doubt, disclose that determination in the footnotes.
The proposal—including instructions on how to submit comments—and a FASB in Focus document are available on the FASB website at www.fasb.org.
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.