FASB Exposure Draft – ASU 2013-300
Disclosure of Uncertainties about an Entity’s Going Concern Presumption

If you’re an entity reporting under U.S. generally accepting accounting principles (GAAP), change could be on the horizon for how you assess and disclose the likelihood that you will not be able to continue to meet your financial obligations. Recently, the Financial Accounting Standards Board (FASB) released an exposure draft proposal outlining financial reporting standards for “going concern presumptions.”

Presently, there is no authoritative guidance regarding management’s responsibilities for evaluating or disclosing going concern uncertainties. Designed to help formally define management’s responsibility for assessing an entity’s going concern presumption, the Accounting Standard Update (ASU) should also help improve timeliness and the quality of entities’ going concern footnote disclosures. Currently, financial statements are prepared with the assumption that an entity will continue as a going concern unless its liquidation is already imminent.

What This Means for Your Company

Going forward, if the proposed ASU is passed, management will be responsible for assessing, on an annual and interim basis, the likelihood that the entity would be unable to meet its obligations as they become due within 24 months of the financial statement date.

Additionally, increased disclosures in the footnotes of the financial statements would be required to accommodate the assessment when at least one of the following thresholds is met:

  1. More likely than not (12-month threshold) – an entity will be unable to meet its obligations within 12 months after the financial statement date without taking actions outside the ordinary course of business. The “more likely than not” threshold is expected to be assessed at a greater than 50 percent chance of happening.
  2. Known or probable (24-month threshold) – an entity will be unable to meet its obligations within 24 months after the financial statement date without taking actions outside the ordinary course of business.

When management’s assessments of the entity’s 12-month and/or 24-month thresholds are triggered, indicating a potential going concern uncertainty, management would be required to increase its disclosures while noting that the entity has a “potential inability” to meet its obligations.

This proposed ASU would not eliminate current generally accepted auditing standards (GAAS) which also discuss going concern uncertainties; however, it will affect how current guidance defines a “reasonable period of time.” Currently, the reasonable period is when an entity would still be operating for 12-months after the financial statement date as a going concern.

Under the new ASU, when conditions are known to exist for a period of 24-months of the financial statements date, the entity’s going concern assumption would be in jeopardy, and the entity would be required to disclose these facts, hence, changing the 12-month “reasonable period of time” to a 24-month threshold.

What to Do?

An effective date has yet to be determined since this is only in the exposure draft stages. It is important to have this on your radar, as you will need to apply the proposed guidance for the prospective reporting periods after the effective date if the ASU is put into place.

Doeren Mayhew encourages all interested parties to respond with comments to FASB no later than Sept. 24, 2013, via one of the following methods:

  1. Written comments to: Technical Director, File Reference No. 2013-300, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116,
  2. Email letter to: director@fasb.org, File Reference No. 2013-300,
  3. FASB website (www.fasb.org/jsp/FASB/Page/SectionPage&cid=1175805074609)

As developments occur in regard to this exposure draft, Doeren Mayhew will keep you up to date. In the meantime, if you have questions about how this will impact your financial reporting, please contact our accounting and audit specialists in MichiganHouston and Florida.