New FASB standard introduces guidance for management to assess and disclose going concern uncertainties.
The FASB (the “board”) issued a new standard — Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern — that will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances.
In connection with each annual and interim period, management will assess if there is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date.
The new standard defines substantial doubt and provides example indicators. The definition of substantial doubt incorporates a likelihood threshold of “probable” similar to the current use of that term in U.S. GAAP for loss contingencies.
Disclosures will be required if conditions give rise to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures.
If substantial doubt is alleviated by management’s plans, the following will need to be disclosed:
If, on the other hand, the initially-identified substantial doubt is not alleviated by management’s plans, the following will need to be disclosed:
The board’s use of “substantial doubt” as the threshold for required disclosures was adopted from current auditing standards. If conditions do not give rise to substantial doubt, no disclosures will be required specific to going concern uncertainties.
The new standard applies to all entities and provides an explicit requirement for management to assess and disclose going concern uncertainties.
The new standard will be effective for all entities in the first annual period ending after December 15, 2016 (December 31, 2016 for calendar year-end entities). Earlier application is permitted.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams who have questions should contact the Risk Management team in the National Professional Services Group.