US standard-setter issues proposal on going-concern disclosures


By Chris Baysden

FASB on Wednesday issued a proposal designed to improve disclosures of uncertainties related to an organisation’s ability to continue as a going concern.

Under US generally accepted accounting principles (GAAP), financial statements are prepared under the inherent presumption that the reporting organisation will be able to continue as a going concern. The US Financial Accounting Standards Board (FASB) explained in a news release that the going-concern presumption is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.

But there is no current guidance in US GAAP about management’s responsibilities in evaluating or disclosing going-concern uncertainties, or when or how uncertainties should be disclosed in an organisation’s footnotes.

The Proposed Accounting Standards Update, Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties About an Entity’s Going Concern Presumption, seeks to provide such guidance in an effort to reduce diversity in financial reporting about these uncertainties. The proposal also aims to improve the timeliness and quality of footnote disclosures about uncertainties.

It would do so, FASB said, by incorporating many of the principles currently in the auditing standards, and by:

  • Requiring management to evaluate going-concern uncertainties more frequently.
  • Prescribing a threshold and related guidance for starting disclosures.
  • Requiring an assessment period of 24 months after the financial statement date. 
  • Providing a threshold for US Securities and Exchange Commission (SEC) filers to determine whether there is substantial doubt about an organisation’s ability to continue as a going concern.

The proposed guidance would apply to all reporting organisations, including public companies, private companies, and non-public not-for-profit organisations, FASB said. Additionally, a public company that is an 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.

“Stakeholders have expressed concerns about diverse practices that have arisen in the financial statement footnotes about uncertainties surrounding an organisation’s ability to continue as a going concern—that is, its ability to continue to operate such that it will be able to realise its assets and meet its obligations in the ordinary course of business,” FASB Chairman Leslie F. Seidman said in a news release.

Comments on the proposal may be submitted until September 24th. The proposal and instructions on how to submit comments are available at fasb.org.

Chris Baysden (cbaysden@aicpa.org) is a CGMA Magazine senior editor.