Going Concerning

Topics: Generally Accepted Accounting Principles, International Financial Reporting Standards, Going concern Pages: 5 (1664 words) Published: April 30, 2013

AYN 415

Research report: Accounting Regulatory Environment

Word Count: 1361

Prepared by

Raymond Morar 07541783
Yi Wang 07409745
Project 1: Going Concern


The FASB’s rationale for this project is to increase consistency in the already existing going concern reporting model and disclosures. This project was added to provide guidance for entities in assessing their ability to continue as a going concern, and the timing, nature and extent of associated disclosure requirements (FASB, 2013). Finally these standards would help management decide where disclosure is appropriate. Alternative approaches

In terms of alternatives IFRS defines going concern as the period in the foreseeable future (Finance Train, 2013). According to IAS 1 Presentation of Financial Statements “an entity preparing IFRS financial statements is presumed to be a going concern.” Furthermore if there are significant concerns about the ability to continue as a going concern, these uncertainties must be disclosed by management and financial statements not prepared under a going concern basis (Deloitte, 2013). The FASB 2008 Discussion draft outlines a second alternative where the same going concern reporting model should be used between public and non public entities. It was argued that any differences would increase complexity and confusion (FASB, 2008). Proposed course of action

The proposed courses of action outlined by the most recent board meeting are as follows. The Disclosure threshold definition for MLTN (more likely than not) in terms of inability to meet obligations within reasonable time when presenting in the financial statements is proposed to be viewed as benchmark not as a broad threshold (FASB, 2013). Standard setters have agreed to have the term also use example indicators to better help managers decide when to disclose. The Definition of “outside the ordinary course of business” now takes into account management plans and examples are provided that will better serve management decisions on disclosure (FASB, 2013). If disclosure is necessary a further determination of whether there is substantial doubt for the entity to meet its obligation within reasonable time would also be required (FASB, 2013). The Disclosure Principle proposal is to increase transparency as it will require entities to disclose sufficient information so that users are able to understand the events associated with its inability to meet obligations, effects and management plans (FASB, 2013). Finally non public entities are not required to make a substantial doubt assertion in the financial statements in regards to a going concern, whereas in public entities this will be required (FASB, 2013). This was changed as there was wide concern among non-public entities about the potential self-fulfilling prophecy of the going concern substantial doubt assertion (FASB, 2013). Constituents views on project

As a discussion draft has not been released yet no official comments have been made however the 2008 discussion draft of this project has had 29 respondents as per appendix. There has been general support for this project towards incorporating guidance on the going concern assessment (FASB, 2008). Although some respondents argued that “new wording may lead to inconsistent application as the nature, volume and type of information available” differs from company to company (FASB, 2008). Wording was further argued to be too broad and that the costs in time and effort for managers in considering all information outweigh any benefits (FASB, 2008). Another concern was time horizon problems for the period of assessment. The AASB is the standard setter in Australia and currently it has not commented on the specific changes. However its views on going concern in terms of management assessing the entity’s ability to continue as a going concern are similar to FASB. This is illustrated in AASB 101 where management shall make an assessment...
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