2023 Tax Calendar
VIEWpoint Issue 2 | 2022
Inflation Reduction Act: Highlights of Key Changes for You and Yo...
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.
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:
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.
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:
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 Michigan, Houston and Florida.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
A quick registration is required to view our resources.
You will only be asked to do this one time (unless you don't save your browser cookies).