Auditors still responsible for going-concern evaluation under PCAOB rules

Recent changes to U.S. GAAP do not change public company auditors’ responsibilities for following existing PCAOB standards when considering a company’s ability to continue as a going concern, the PCAOB said Monday.

In a staff audit practice alert, the PCAOB said current auditing requirements remain in force in light of FASB’s release in August of a standard defining management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern.

“An auditor’s responsibility to evaluate a company’s ability to continue as a going concern is an important part of the audit,” PCAOB Chief Auditor and Director of Professional Standards Martin Baumann said in a news release. “With the recent changes to U.S. GAAP, the staff is issuing this alert to make clear that current auditing standards remain in effect.”

According to the alert:

• Auditors should look to the applicable financial reporting framework—whether it’s U.S. GAAP or IFRS—to assess management’s going-concern evaluation and the related financial statement disclosures.
• Auditors should continue to follow the existing requirements of AU Section 341, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern. This guidance should be used to evaluate whether the auditor’s report requires an explanatory paragraph disclosing the auditor’s substantial doubt about a company’s ability to continue as a going concern. Under the standard, the auditor’s evaluation is qualitative.
• A determination that U.S. GAAP or IFRS does not require a going-concern disclosure for management does not necessarily mean that the auditor is not required to file a going-concern explanatory paragraph under AU Section 341. Auditors are required by AU Section 341 to make a separate evaluation on whether disclosure is necessary in the auditor’s report.

While the current going-concern auditing standard remains in force, the PCAOB is evaluating potential revisions to the standard.

— Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.