In 2014, the FASB issued several new standards that will impact companies in future periods. In addition to the revenue recognition standard, CFGI analyzed two standards of significance that may impact our clients:
GOING CONCERN: MANAGEMENT’S RESPONSIBILITY
Beginning in 2017, company management will be required to evaluate and disclose a company’s ability to continue as a going concern. This update addresses the lack of guidance about management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern or to provide related footnote disclosure.
Accounting Standards Update 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, was issued by the FASB in August 2014. The standard applies to both public and nonpublic companies beginning with the first annual period ending after December 15, 2016. This standard requires that management assess a company’s ability to continue as a going concern and to provide related footnote disclosures.
Beginning in 2017, company management will be required to evaluate and disclose a company’s ability to continue as a going concern. This update addresses the lack of guidance about management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern or to provide related footnote disclosure.
Conditions or events that raise substantial doubt about a company’s ability to continue as a going concern relate to the entity’s ability to meet its obligations as they become due. In management’s assessment, consideration should be given to both quantitative and qualitative information that is known and/or should be reasonably known at the date the entity’s financial statements are to be issued. If the conditions or events indicate a substantial doubt about a company’s ability to continue as a going concern for at least one year from the issuance date, management should evaluate their mitigation plans. These plans could alleviate the substantial doubt of a going concern if it is probable that the plans will be effectively implemented within one year after the date the financial statements are issued, and probable that the plans will mitigate the relevant conditions and events. Mitigation plans must be approved by management before the issuance date in order for them to alleviate the conditions and events to be considered in this analysis.
In the event substantial doubt about a company’s ability to continue as a going concern exists, a company is required to make the following disclosures irrespective of whether management’s plans would alleviate the conditions or events:
- Conditions or events that raise substantial doubt about a company’s ability to continue as a going concern.
- Management’s evaluation of significance of those conditions or events in relation to the ability to meet the obligations.
- Management’s plans to alleviate the substantial doubt about a company’s ability to continue as a going concern.
In addition, an instance where substantial doubt is raised and Management’s plan does not alleviate the doubt, the Company is required to make the following additional disclosures:
- Management’s plans that are intended to mitigate the substantial doubt (as compared to alleviate substantial doubt as noted above) regarding a company’s ability to continue as a going concern.
- A statement indicating there is substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued.