AICPA Seeks Clarity in Auditors' `Going Concern' Evaluation

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By Laura Tieger Salisbury

July 6 — The American Institute of CPAs' Auditing Standards Board proposed a uniform set of principles for auditors to evaluate the validity of management's determination of whether the company is economically viable enough to be a “going concern.”

AICPA's Auditing Standards Board (ASB) said its July 6 exposure draft is intended to give auditors one set of principles to apply to different accounting frameworks for making the “going concern” evaluation and end diversity in auditing practice.

Auditor Objectives

The ASB's exposure draft says auditor's objectives should be to:

  •  obtain sufficient appropriate audit evidence regarding, and to conclude, whether management appropriately used the “going concern” basis of accounting in the preparation of the financial statements; and
  •  conclude, based on audit evidence, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time.

The ED also includes proposed amendments to auditing standards addressing:

  •  audits of special-purpose frameworks; and
  •  audits of single financial statements and specific elements, accounts, or items of a financial statement.

Depending on the framework—U.S. GAAP, Public Company Accounting Oversight Board standards, or International Auditing and Assurances Standards Board—auditors choose between different rules to evaluate going concern, according to the ASB.

Timeline Diversity

Under U.S. GAAP—FASB's ASU No. 2014-15 (10 APPR 785, 8/29/14), the company is required to evaluate whether there is “substantial doubt ” that the entity will continue as a going concern either “within one year of the date the financial statements are issued.”

The Governmental Accounting Standards Board gives management one year beyond the financial statement date. If, however, the government entity knows information that would raise “substantial doubt” within an additional few months following that tear, then “such information also should be considered.”

PCAOB Staff Audit Practice Alert No. 13

The PCAOB issued Staff Audit Practice Alert No. 13: “Matters Related to the Auditor's Consideration of a Company's Ability to Continue as a Going Concern,” to clarify what rules auditors of public companies should apply in light of the changes to U.S. generally accepted accounting principles in 2014 (10 APPR 882, 9/26/14).

The International Accounting Standards framework—IAS 1—requires management to look ahead in its “going concern” evaluation for at least a year, but also requires management to take into account “all available information about the future.”

IAS 1, unlike the U.S. standards, doesn't define “material uncertainties' or “significant doubt,” according to PCAOB's discussion in staff audit practice alert No. 13.

Reasonable Period of Time

The ASB's exposure draft instead suggests the term “reasonable period of time,” which is defined as “the period of time required by the applicable financial reporting framework or if no such requirement exists, one year from the date the financial statements are issued or are available to be issued.”

The ASB's explanatory memorandum says that it aims to converge its standards with those of the International Auditing and Assurance Standards Board.

The ASB used ISA 570 as its model, according to the exposure draft, but with language more commonly used in the U.S., such as by FASB and the GASB..

Emphasis- of- Matter Paragraph

Some of the proposed amendments would apply to AU-C section 930, Interim Financial Information— financial information for the quarters between the annual financial statements.

The AICPA wants these paragraphs in the audit reports “to reinforce the consistency between the annual and interim financial information.”

Using “emphasis- of-matter paragraphs ” the auditors should explain their doubts about an entity's financial viability in the auditor report section of the financial filings—when an “auditor determines that a piece of information is so important that it is fundamental to a reader's understanding of the financial statement.

To contact the reporter on this story: Laura Tieger Salisbury in Washington at

To contact the editor responsible for this story: Steven Marcy at

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