Going Concern “Look-Forward” Period Likely To Be Extended by FASB

At its May 7th meeting, the Financial Standards Accounting Board (FASB) continued redeliberations of proposed Accounting Standards Update, Presentation of FinancialFASB-logo Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Going Concern Presumption (originally proposed in June 2013).

As a result of these discussions, NPOs should consider the implications of the extended look-forward period and discuss with their lenders and auditors how maturity dates of credit facilities and other debt instruments may need to be adjusted in instances where those dates may affect the evaluation of the organization’s ability to continue as a going concern.

Here is a summary of the decisions made by FASB:

Assessment Date and the Look-Forward Period

  • Management’s assessment of an entity’s ability to continue as a going concern should be based on relevant conditions or events known or reasonably knowable at the date the financial statements are issued (or for a nonpublic entity, the date the financial statements are available to be issued).
  • The look-forward period (that is, the period over which the entity’s ability to meet its obligations is assessed) should be one year from the date the financial statements are issued(or for a nonpublic entity, the date the financial statements are available to be issued). Under current standards, the look-forward period is one year from the date of the balance sheet (for NPOs, this is commonly called the statement of financial position).

Nonpublic Entities

  • The standard will apply to both public and nonpublic entities.

Transition and Effective Date

  • All entities will apply the new requirements prospectively for annual periods beginning after December 15, 2015, and in interim periods thereafter. Early adoption is permitted.

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

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