FASB Seeks to Clarify Rules for Assessing Future Viability

October 22, 2008

FASB issued exposure drafts of proposed statements on going concern and subsequent events. The proposals converge U.S. GAAP and IFRS and incorporate accounting guidance related to determining the viability of entities.

The proposed statement on Going Concern would require management to consider all available information about the future when assessing whether a going concern assumption is appropriate. The time horizon is defined as at least, but not limited to, 12 months from the end of the reporting period, rather than the current limit of one year beyond the date of the financial statements. The proposal also would require disclosures when there is substantial doubt about an entity’s ability to continue as a going concern. The guidance originated as auditing standards. FASB believes the guidance belongs in the accounting literature because it is management’s responsibility to assess the ongoing viability of the reporting entity, according to a FASB press release.

The proposed statement on Subsequent Events establishes general accounting and disclosure standards for events that occur subsequent to the balance sheet due date but before financial statements are issued or available to be issued. The proposed statement also would require disclosure of the date through which management has evaluated subsequent events, which would alert financial statement users that management has not evaluated subsequent events after that date.

Comments on both EDs are due by Dec. 8.

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