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Nov. 29 — A company’s disclosure about whether it will be able to continue as an operating entity promises to be big issue in reporting its financial activities for 2016, a former PCAOB chief auditor said.
The going-concern topic “is going to be a big concern” in the next financial reporting season, Douglas Carmichael, a professor at Baruch College and former Public Company Accounting Oversight Board chief auditor, said Nov. 29 at an annual auditing conference.
U.S. accounting rules on “going concern” (ASU 2014-15) shifted the disclosure duty on such uncertainty from the auditor to a company’s managers. The rules become effective for public companies reporting covering annual periods ending after Dec. 15, 2016.
The change in responsibilities stems in part from the 2008-09 financial crisis, when companies went belly up with very little in the way of early-warning disclosures about operational uncertainty.
In the private company realm, Michael Santay, chairman of the Auditing Standards Board of the American Institute of CPAs, who also spoke at the conference, encouraged auditors to give more information about uncertainties surrounding whether enterprises will continue to operate.
Santay, a chief rule-maker for auditors of non-public company reporting, said that the ASB is on the path to encouraging more rather than less information related to going concern.
Under ASB guidance, auditors of enterprises would be permitted to report on “close calls” in which uncertainty doesn’t rise to the level that the company expects to fold within a year of making its financial statements available.
The one-year forecast often is regarded as a death knell or self-fulfilling prophecy for companies, but investors have told the PCAOB they value the early warnings.
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