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FASB Returns To Revisit Going Concern

At its board meeting yesterday, FASB decided to revisit its prior decisions on whether to define in the accounting literature (GAAP) how to assess and report on a 'going concern' decision, and will move forward on this project. The major impact of FASB taking on such a project, which it has, as described in an article by BNA's Steven Burkholder earlier today, 'see-sawed' on, is a scope issues as much as a theoretical or technical issue - i.e. whether management should formally make and disclose the 'going concern' decision, vs. the responsibility for that decision and disclosure continuing to remain with the auditors (as currently housed in auditing literature of the AICPA and the PCAOB). No matter how you slice it, as noted in the discussion at yesterday's FASB meeting and described in Burkholder's article, the FASB board and staff recognize the need to work in close communication with regulators (and quasi-regulators or auditing standard-setters) including the SEC, PCAOB and AICPA, and continue to gather input from all parts of its constituency.

Specifically, as stated in FASB's Summary of Board Decisions:

The Board also decided that it will revisit the question of whether management should be required to assess whether there is doubt about an entity’s ability to continue as a going concern in light of its recent decision not to pursue going-concern-type disclosures in the project about liquidity and interest rate risk disclosures. The Board directed the staff to consider this 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.

In describing the change of heart by the FASB board as a whole, BNA's Burkholder related comments made at yesterday's board meeting by board member Larry Smith:
Smith noted that he had previously voiced opposition to have management make the assessment about the ability of the entity to continue as a going concern (208 DTR G-8, 10/27/11). He took that view “primarily because I thought the value was in the disclosures that” he, “as well as a couple of other people,” were supporting, Smith said of the earlier planned disclosures that were to be part of the liquidity risk and interest rate risk reporting effort.
“However, in light of the fact that we decided not to go forward with those disclosures,” he continued, ”I still think there's more for management to disclose.” Noting what he acknowledged was effectively a reversing of position, Smith said it is worthwhile to continue to pursue whether it should be management's job to make those going concern-related disclosures.
Smith suggested working with PCAOB to try “to come up with some kind of a consistent determination and assessment.”

Read more in Burkholder's extensive coverage of this issue, published by BNA today: 
FASB to Reconsider Managers Versus Auditors Making Going Concern Judgments (sub req'd).

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Posted: 5/3/2012 1:44:41 PM by Edith Orenstein | with 2 comments
Filed under: FASB board,Going Concern,Larry Smith,Steve Burkholder,Steven Burkholder,auditors,BNA,FASB,management,PCAOB,SEC,AICPA

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Ms. Edith Orenstein
Thanks for your comment, Dan.
5/7/2012 12:47:12 PM
Daniel Reynolds
Good update. See-saw the Board has on this matter. Still, I expect that logic will ultimately prevail: if management has substantial doubt that the entity can continue as a going concern, then it should explicitly disclose it.
5/3/2012 5:29:21 PM
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