ASB issues auditing interpretations to SAS No. 126 on going concern

By Ken Tysiac

The AICPA Auditing Standards Board (ASB) issued four auditing interpretations Friday to address some of the effects of accounting standards on going concern.

FASB in August issued Accounting Standards Update (ASU) 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. The standard establishes 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.

Going-concern responsibilities for state and local government preparers, meanwhile, were incorporated into GASB’s standards in 2009 with the issuance of GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards.

The new auditing interpretations to Statement on Auditing Standards No. 126, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (Redrafted) (AICPA, Professional Standards, AU-C Section 570), are the result of a short-term initiative by the ASB to address some of the effects of these accounting standards.

The interpretations address:

  • The definition of “substantial doubt about an entity’s ability to continue as a going concern.”
  • The definition of reasonable period of time.
  • Interim financial information.
  • Consideration of financial statements’ effects.

The ASB expects to undertake a more comprehensive project in the longer term to align AU-C Section 570 with the various accounting and auditing standards.

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

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