Auditors’ and Management's New Approach Regarding the Going Concern Assessment

Alan Reinstein, DBA, CPA, CGMA, and Stefanie L. Tate, PhD, CPA

With its issuance of Accounting Standards Update (ASU) 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, FASB has altered the focus of the going concern assessment from the auditor to management. Previously, AICPA AU-C section 570 and PCAOB AU section 341, “The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern,” provided guidance for the auditor's consideration and disclosure of going concern in audit reports for auditors of nonpublic and public entities, respectively. Despite some overlap between FASB's new standard and existing auditing standards, some significant differences arose, causing the AICPA to issue AU-C section 9570, “The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern: Auditing Interpretations of AU-C section 570.” The AICPA's resolution of these differences and the attendant implications for practicing auditors are summarized in the Exhibit. The authors also highlight the differences between the U.S. and international accounting and auditing standards.