FASB to revisit going-concern question

BY KEN TYSIAC

FASB on Wednesday decided to revisit the question of whether management should be required to assess if there is doubt about an entity’s ability to continue as a going concern.

The decision came as a result of FASB’s recent decision not to pursue going-concern-type disclosures in its project about liquidity and interest rate risk disclosures, according to FASB’s summary of board decisions.

Last month, FASB decided that it would not require qualitative disclosures about an entity’s ability to remain a going concern that would supplement the proposed quantitative disclosures about liquidity risks. That decision came about because FASB believed that meeting users’ needs for additional information regarding an entity’s ability to remain a going concern would require a collaborative effort of FASB and other organizations that would have the capability to provide the most effective solution.

In January, FASB decided it would not require management to assess whether there is substantial doubt about an entity’s ability to continue as a going concern; a majority of board members determined that such a requirement would be difficult to apply. Instead, board members decided ongoing disclosures about risks and uncertainties would be more valuable to users of financial statements.

On Wednesday, FASB directed the staff to consider the going-concern question in the context of a separate project and to continue with the balloting process for a Proposed Accounting Standards Update on the liquidation basis of accounting.

Also on Wednesday, FASB made a decision about limited-life entities’ financial statements in the project on disclosures about risks and uncertainties and the liquidation basis of accounting. The board determined that a limited-life entity should prepare financial statements using the liquidation basis of accounting when significant management activities are limited to those necessary to carry out a plan of liquidation other than what was contemplated in the governing documents of the entity.

FASB also decided that for-profit entities that are conduit bond obligors for conduit debt securities traded publicly will not be considered private companies for standard-setting purposes even if they otherwise meet the characteristics of a private company described in the project on defining a nonpublic entity.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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