Financial reporting

  FASB issued a financial reporting standard defining management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.

The standard provides new guidance, as current GAAP does not describe management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or provide disclosures in the footnotes.

Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, provides principles and definitions for management that are intended to reduce diversity in the timing and content of disclosures provided in footnotes.

Under the standard, available at, management is required to evaluate for each annual and interim reporting period whether it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued (or are available to be issued, where applicable).

When management identifies substantial doubt about the entity’s ability to continue as a going concern, management should consider whether its plans to mitigate conditions will alleviate the substantial doubt. If management’s plans alleviate the substantial doubt, the entity should disclose information on:

  • Conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern.
  • Management’s evaluation of the significance of those conditions or events, in relation to the entity’s ability to meet its obligations.
  • Management’s plans that alleviated the substantial doubt about the entity’s ability to continue as a going concern.

If management’s plans do not alleviate substantial doubt, management will be required to include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued or are available to be issued.

The entity also would be required to make similar disclosures to those made by entities whose substantial doubt is alleviated. An entity whose substantial doubt about its ability to continue is not alleviated by management’s plans would disclose information that enables financial statement users to understand the conditions that raise substantial doubt, management’s evaluation of the significance of those conditions or events related to the ability to meet obligations, and management’s plans to mitigate those conditions.

The amendments apply to all companies and not-for-profit organizations. They will take effect in the annual periods ending after Dec. 15, 2016, and interim periods within annual periods beginning after Dec. 15, 2016. Early application is permitted.

  The Private Company Council (PCC) voted to approve a GAAP alternative that will allow private companies to elect not to separately recognize and measure certain intangible assets acquired in a business combination.

Private companies that elect the alternative would not recognize:

  • Noncompetition agreements.
  • Customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of a business.

It is anticipated that customer-related intangible assets often would not meet one of the criteria for recognition. Customer-related assets that may meet one of the criteria for recognition would include mortgage servicing rights, commodity supply contracts, and core deposits.

If FASB endorses the alternative, it can be written into GAAP. FASB’s endorsement is required for all PCC-originated GAAP alternatives.

In addition, the PCC agreed to let FASB take the lead in exploring possible improvements for accounting for stock-based compensation. FASB will consider adding a project to its agenda for public and private companies; if a project is added, the PCC will continue to advise FASB on private company issues related to the topic.

  FASB issued a proposal designed to simplify the accounting for fees that public and private companies pay as customers in cloud-computing arrangements with third-party service providers.

Rules exist under current GAAP addressing the accounting for cloud service providers. But there is no explicit accounting guidance under GAAP about how a customer should account for fees paid to the cloud service provider.

This lack of guidance can lead to unnecessary cost and complexity during the evaluation of how to account for those fees, as well as diversity in practice.

The Proposed Accounting Standards Update, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, would give customers guidance according to whether a cloud-computing arrangement includes a software license:

  • If the cloud-computing arrangement includes a software license, the customer would account for it in a manner consistent with accounting for other software licenses.
  • If no software license is included in the cloud-computing arrangement, the customer would account for the arrangement as a service contract.

Existing GAAP for customers’ accounting for software licenses or service contracts would not change under the proposal.

The proposal, available at, is part of FASB’s simplification initiative, which aims to find expedited solutions to narrowly focused concerns about U.S. GAAP. FASB is accepting comments on the proposal at its website, which can be accessed at The deadline for comments is Nov. 18.


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