1. A Global Reach with a Local Perspective
University of North Alabama
19th Annual Decosimo Accounting Forum
July 22, 2011
www.decosimo.com
FASB ACCOUNTING STANDARDS
CODIFICATION UPDATE 2011
DEREK DANIEL, CPA
Assurance Manager
2. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
Why Is the FASB Issuing This Accounting Standards Update (Update)?
Under Topic 350 on goodwill and other intangible assets, testing for goodwill
impairment is a two-step test.
When a goodwill impairment test is performed (either on an annual or
interim basis), an entity must assess whether the carrying amount of a
reporting unit exceeds its fair value (Step 1). If it does, an entity must
perform an additional test to determine whether goodwill has been impaired
and to calculate the amount of that impairment (Step 2).
The objective of this Update is to address questions about entities with
reporting units with zero or negative carrying amounts because some
entities concluded that Step 1 of the test is passed in those circumstances
because the fair value of their reporting unit will generally be greater than
zero. As a result of that conclusion, some constituents raised concerns that
Step 2 of the test is not performed despite factors indicating that goodwill
may be impaired. The amendments in this Update do not provide guidance
on how to determine the carrying amount or measure the fair value of the
reporting unit.
3. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
Who Is Affected by the Amendments in This Update?
The amendments in this Update affect all entities that have
recognized goodwill and have one or more reporting units whose
carrying amount for purposes of performing Step 1 of the goodwill
impairment test is zero or negative.
4. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
What Are the Main Provisions?
The amendments in this Update modify Step 1 of the goodwill
impairment test for reporting units with zero or negative carrying
amounts.
For those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill
impairment exists.
In determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that an impairment may exist. The
qualitative factors are consistent with the existing guidance and
examples in paragraph 350-20-35-30, which requires that goodwill of a
reporting unit be tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying amount.
5. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
ASC 350-20-35-30 Goodwill of a reporting unit shall be tested for impairment between annual
tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. Examples of such events or circumstances
include the following:
a. A significant adverse change in legal factors or in the business climate
b. An adverse action or assessment by a regulator
c. Unanticipated competition
d. A loss of key personnel
e. A more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit
will be sold or otherwise disposed of
f. The testing for recoverability under the Impairment or Disposal of Long-Lived Assets
Subsections of Subtopic 360-10 of a significant asset group within a reporting unit
g. Recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a
component of a reporting unit.
6. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
How Do the Main Provisions Differ from Current U.S. Generally
Accepted Accounting Principles (GAAP) and Why Are They an
Improvement?
The amendments in this Update modify Step 1 of the goodwill
impairment test for reporting units with zero or negative carrying
amounts. As a result, current GAAP will be improved by eliminating
an entity’s ability to assert that a reporting unit is not required to
perform Step 2 because the carrying amount of the reporting unit is
zero or negative despite the existence of qualitative factors that
indicate the goodwill is more likely than not impaired. As a result,
goodwill impairments may be reported sooner than under current
practice.
7. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
When Will the Amendments Be Effective?
For public entities, the amendments in this Update are effective for fiscal years,
and interim periods within those years, beginning after December 15, 2010.
Early adoption is not permitted.
For nonpublic entities, the amendments are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. Nonpublic
entities may early adopt the amendments using the effective date for public
entities.
Upon adoption of the amendments, an entity with reporting units that have
carrying amounts that are zero or negative is required to assess whether it is
more likely than not that the reporting units’ goodwill is impaired. If the entity
determines that it is more likely than not that the goodwill of one or more of its
reporting units is impaired, the entity should perform Step 2 of the goodwill
impairment test for those reporting unit(s). Any resulting goodwill impairment
should be recorded as a cumulative-effect adjustment to beginning retained
earnings in the period of adoption.
Any goodwill impairments occurring after the initial adoption of the amendments
should be included in earnings as required by Section 350-20-35.
8. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
How Do the Provisions Compare with International Financial Reporting
Standards (IFRS)?
The provisions provide guidance on when to perform Step 2 of the goodwill
impairment test for reporting units with zero or negative carrying amounts.
Entities that follow IFRS use a different impairment model under IAS 36,
Impairment of Assets, which is a single-step goodwill impairment test.
9. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
Objections to this update:
Some people object to the issuance of this Accounting Standards
Update. These people agree with the concept of requiring the use of
qualitative factors in assessing whether a goodwill impairment exists
when there is a reporting unit with a nominal carrying amount; however,
they object to the establishment of a bright line to determine when
qualitative factors should be considered. They believe that the masking
of a goodwill impairment by a reporting unit with a positive fair value
can just as easily occur with reporting units with nominal, positive
carrying amounts as it can with reporting units with zero or negative
carrying amounts. They would have supported the development of a
principle to address these concerns rather than the use of a bright line
that fails to address similar situations.
10. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
Determining the Implied Fair Value of Goodwill (Step 2 of Goodwill
Impairment test)
ASC 350-20-35-14 The implied fair value of goodwill shall be determined in
the same manner as the amount of goodwill recognized in a business
combination or an acquisition by a not-for-profit entity was determined. That
is, an entity shall assign the fair value of a reporting unit to all of the assets
and liabilities of that unit (including any unrecognized intangible assets) as if
the reporting unit had been acquired in a business combination or an
acquisition by a not-for-profit entity. Throughout this Section, the term
business combination includes an acquisition by a not-for-profit entity.
11. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
Why Is the FASB Issuing This Accounting Standards Update
The objective of this Update is:
To improve the comparability, consistency, and transparency of financial
reporting and to increase the prominence of items reported in other
comprehensive income.
To increase the prominence of items reported in other comprehensive
income and to facilitate convergence of U.S. generally accepted accounting
principles (GAAP) and International Financial Reporting Standards (IFRS),
the FASB decided to eliminate the option to present components of other
comprehensive income as part of the statement of changes in stockholders’
equity, among other amendments in this Update.
12. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
Why Is the FASB Issuing This Accounting Standards Update
The amendments require that all nonowner changes in stockholders’ equity
be presented either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In the two-statement
approach, the first statement should present total net income and its
components followed consecutively by a second statement that should
present total other comprehensive income, the components of other
comprehensive income, and the total of comprehensive income.
13. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
Who Is Affected by the Amendments in This Update?
All entities that report items of other comprehensive income, in any
period presented, will be affected by the changes in this Update.
14. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
What Are the Main Provisions?
Under the amendments to Topic 220, Comprehensive Income, in
this Update, an entity has the option to present the total of
comprehensive income, the components of net income, and the
components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate
but consecutive statements. In both choices, an entity is required to
present each component of net income along with total net income,
each component of other comprehensive income along with a total
for other comprehensive income, and a total amount for
comprehensive income.
15. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
What Are the Main Provisions?
In a single continuous statement, the entity is required to present the
components of net income and total net income, the components of other
comprehensive income and a total for other comprehensive income, along
with the total of comprehensive income in that statement.
In the two-statement approach, an entity is required to present components
of net income and total net income in the statement of net income. The
statement of other comprehensive income should immediately follow the
statement of net income and include the components of other
comprehensive income and a total for other comprehensive income, along
with a total for comprehensive income.
16. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
What Are the Main Provisions?
The amendments in this Update do not change the items that must be
reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income.
The amendments do not change the option for an entity to present
components of other comprehensive income either net of related tax effects
or before related tax effects, with one amount shown for the aggregate
income tax expense or benefit related to the total of other comprehensive
income items.
In both cases, the tax effect for each component must be disclosed in the
notes to the financial statements or presented in the statement in which
other comprehensive income is presented.
The amendments do not affect how earnings per share is calculated or
presented.
17. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
How Do the Main Provisions Differ from Current U.S. Generally Accepted
Accounting Principles (GAAP) and Why Are They an Improvement?
Current U.S. GAAP allows reporting entities three alternatives for presenting
other comprehensive income and its components in financial statements.
One of those presentation options is to present the components of other
comprehensive income as part of the statement of changes in stockholders’
equity. This Update eliminates that option.
In addition, current U.S. GAAP does not require consecutive presentation of
the statement of net income and other comprehensive income.
Finally, current U.S. GAAP does not require an entity to present
reclassification adjustments on the face of the financial statements from
other comprehensive income to net income, which is required by the
guidance in this Update.
These changes apply to both annual and interim financial statements.
These improvements will help financial statement users better understand
the causes of an entity’s change in financial position and results of
operations.
18. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
When Will the Amendments Be Effective?
The amendments in this Update should be applied retrospectively.
For public entities, the amendments are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011.
For nonpublic entities, the amendments are effective for fiscal years ending
after December 15, 2012, and interim and annual periods thereafter.
Early adoption is permitted, because compliance with the amendments is
already permitted. The amendments do not require any transition
disclosures.
19. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
How Do the Provisions Compare with International Financial Reporting
Standards (IFRS)?
This Update is the result of a joint project conducted by the FASB
and the IASB to improve the presentation of comprehensive
income in a manner that is as convergent as possible.
IFRS currently permits components of other comprehensive
income to be presented either in a single statement or in two
consecutive statements. Therefore, the amendments will result in
more converged guidance on how comprehensive income is
presented under both U.S. GAAP and IFRS.
20. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income
How Do the Provisions Compare with International Financial Reporting
Standards (IFRS)?
Although the two Boards agree on how items of comprehensive income
should be presented, other differences in reporting comprehensive
income between U.S. GAAP and IFRS will remain that affect the
comparability of financial statements prepared under U.S. GAAP and
IFRS. In particular, there are some differences between the types of
items reported in other comprehensive income and the requirements for
reclassifying those items into net income. (foreign currency
adjustments, derivative instruments, unrealized gains/losses on
available-for-sale securities, etc.)
Removing certain presentation options will make it easier to compare
statements of comprehensive income prepared using U.S. GAAP with
those prepared using IFRS.
21. FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic
820): Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs
This ASU represents the converged guidance of the FASB and the IASB
(the Boards) on fair value measurement. The collective efforts of the Boards
and their staffs, reflected in ASU 2011-04, have resulted in common
requirements for measuring fair value and for disclosing information about
fair value measurements, including a consistent meaning of the term “fair
value.”
The Boards have concluded the common requirements will result in greater
comparability of fair value measurements presented and disclosed in
financial statements prepared in accordance with U.S. GAAP and IFRSs.
22. FASB Accounting Standards Update 2011-02, Receivables (Topic 310): A
Creditor’s Determination of Whether a Restructuring Is a Troubled Debt
Restructuring
The FASB believes the guidance in this ASU will improve financial reporting
by creating greater consistency in the way GAAP is applied for various
types of debt restructurings.
The ASU clarifies which loan modifications constitute troubled debt
restructurings. It is intended to assist creditors in determining whether a
modification of the terms of a receivable meets the criteria to be considered
a troubled debt restructuring, both for purposes of recording an impairment
loss and for disclosure of troubled debt restructurings.
In evaluating whether a restructuring constitutes a troubled debt
restructuring, a creditor must separately conclude that both of the following
exist: (a) the restructuring constitutes a concession; and (b) the debtor is
experiencing financial difficulties. The amendments to FASB Accounting
Standards Codification™ (Codification) Topic 310, Receivables, clarify the
guidance on a creditor’s evaluation of whether it has granted a concession
and whether a debtor is experiencing financial difficulties.
23. FASB Going Concern Project
Although the issue of "going concern" is an accounting
issue, the only authoritative guidance related to going
concern is found in the audit literature and guidance
related to compilations and reviews.
Given the importance of the issue in GAAP, accountants
often find it unsettling that the issue is not addressed
within GAAP.
24. FASB Going Concern Project
The going concern assumption is fundamental to accrual
accounting.
To assume that an entity will continue in business is to say that the
entity expects to realize its assets at the recorded amounts and to
extinguish its liabilities in the normal course of business.
Among other things, the going concern assumption justifies the
current and non-current classification within the balance sheet, the
allocation of costs over periods benefited, historical cost accounting,
and most aspects of the revenue recognition and matching
principles.
Continuation of an entity as a going concern is assumed in financial
reporting in the absence of significant information to the contrary.
Therefore, going concern is an accounting assumption.
25. FASB Going Concern Project
During 2007, 2008 and 2009 (no figures for 2010 as of the date this
presentation was prepared), over 3,000 public companies (or about
20% of U.S. public companies) had going concern paragraphs in
their audit report during each year.
Some people say, “going concern opinions,” but that is not true
because having that paragraph in an audit report does not affect the
opinion on the financial statements. It is an “explanatory
paragraph,” so it should be called, “a paragraph in the report” rather
than a “going concern opinion.”
It’s not a death sentence. All 3,000 of these companies did not go
out of business since they were classified as a going concern.
26. FASB Going Concern Project
AUTHORITATIVE GUIDANCE:
In 1981, the AICPA addressed the issue of going concern status through SAS
No. 34, The Auditor's Considerations When a Question Arises About an Entity's
Continued Existence.
In 1988, the AICPA issued SAS No. 59, The Auditor's Consideration of an
Entity's Ability to Continue as a Going Concern (AU §341), which remains the
authoritative guidance.
Prior to SAS No. 34, the authoritative literature provided little guidance on when
the auditor should consider modifying the audit report based on uncertainty that
the entity could continue as a going concern.
AU §341 provides guidance to the auditor in conducting an audit of financial
statements in accordance with generally accepted auditing standards (GAAS)
with respect to evaluating whether there is substantial doubt about the entity's
ability to continue as a going concern.
27. FASB Going Concern Project
AUTHORITATIVE GUIDANCE (continued):
The consideration of an entity's ability to continue as a going concern is
required in every audit performed under GAAS, and is an especially
important consideration in the current state of the economy.
An entity's ability to continue as a going concern is affected by many
factors related to the current uncertain economy-the industry and
geographic area in which it operates, the financial health of its
customers, suppliers, and financing sources. Accordingly, it is critical to
perform an individual analysis of going concern issues related to each
entity.
The consideration of an entity's ability to continue as a going concern
may be discussed during client retention procedures and also in the
earliest stages of the audit in conjunction with gaining an understanding
of the entity and its environment.
28. FASB Going Concern Project
The Financial Accounting Standards Board (FASB) has proposed changes
that would provide guidance on the preparation of financial statements as a
going concern and on management's responsibility to evaluate a reporting
entity's ability to continue as a going concern. It also would require certain
disclosures when the financial statements are not prepared on a going
concern basis, as well as provide guidance on the adoption and application of
the liquidation basis of accounting.
As an auditor, we are evaluating management's assertion about the entity's
ability to continue as a going concern.
29. FASB Going Concern Project
Liquidation Basis of Accounting
The Board decided to provide the following principles-based
guidance on the adoption and application of the liquidation basis
of accounting.
An entity should prepare financial statements on the going
concern basis unless liquidation is imminent. Liquidation is
imminent if:
(a) a plan of liquidation has been approved by the entity’s owners or
(b) the plan to liquidate is being imposed by other forces and it is
remote that the entity will become a going concern in the future.
30. FASB Going Concern Project
Liquidation Basis of Accounting cont.
An entity that applies the liquidation basis of accounting should
measure the items in its financial statements to reflect the actual
amount of cash that the entity expects to collect or pay during the
course of liquidation. This measurement should include, but is not
limited to, recognition of (a) costs to dispose of assets or liabilities and
(b) expense and income to be incurred through liquidation.
The measurement bases and significant assumptions used should be
disclosed.
31. FASB Going Concern Project
TIME HORIZON
AU §341 states that there is "a responsibility to evaluate
whether there is substantial doubt about the entity's ability to
continue as a going concern for a reasonable period of time,
not to exceed one year beyond the date of the financial
statements being audited."
International Accounting Standard (IAS 1), Presentation of
Financial Statements, requires that an entity consider "all
available information about the future, which is at least, but is
not limited to 12 months from the end of the reporting period"
when assessing whether the going concern assumption is
appropriate.
32. FASB Going Concern Project
TIME HORIZON (continued)
As such, the FASB decided that management should take into
account available information about the foreseeable future, which is
generally, but not limited to, 12 months from the end of the reporting
period. Certain events that are expected to occur or are reasonably
foreseeable beyond 12 months, and would materially affect the
assessment, are considered part of the foreseeable future.
The time frame beyond 12 months is limited to a practical amount of
time thereafter in which significant events or conditions that may
affect the evaluation can be identified.
The FASB does not intend for the assessment of the period beyond
a year to be open ended or an indefinite period.
33. FASB Going Concern Project
AU §341 states that the auditor's evaluation is based on
relevant conditions that exist at or have occurred prior to
the date of the audit report. Therefore, this is an ongoing
evaluation that extends through the date of the audit
report.
34. FASB Going Concern Project
In this proposal, the FASB decided not to specifically define a
"going concern." Instead, the FASB decided to require the
following disclosures when management, applying
"commercially reasonable business judgment," is aware of
conditions and events that indicate, based on current facts
and circumstances, that it is reasonably foreseeable that an
entity may not be able to meet its obligations as they become
due without substantial disposition of assets outside the
ordinary course of business, restructuring of debt, issuance of
equity, externally or internally forced revisions of operations,
or similar actions:
Pertinent conditions and events giving rise to the assessment,
including when such conditions and events are anticipated to
occur, if reasonably estimable
35. FASB Going Concern Project
(continued from previous slide)
The possible effects of those conditions and events
Possible discontinuance of operations
Management's evaluation of the significance of those
conditions and events and any mitigating factors
Management's plans to mitigate the effects of the conditions
and events, whether those plans can be effectively
implemented, and the likelihood that such plans will mitigate
the adverse effects
Information about the recoverability or classification of
recorded asset amounts or the amounts or classification of
liabilities
36. FASB Going Concern Project
The consideration of an entity's ability to continue as a going
concern is required in every audit performed under GAAS. You
meet this responsibility in the following manner:
Consider conditions and events (red flags) that indicate there could
be substantial doubt about the entity's ability to continue as a going
concern for a reasonable period of time
Identify and evaluate management's plans for dealing with the
conditions or events that prompted the substantial doubt conclusions
and assess the likelihood that such plans can be effectively
implemented
Draw a conclusion concerning the existence of substantial doubt
and consider the effect of this conclusion on disclosures in the
financial statements and modifications of the audit report.
37. FASB Going Concern Project
COMPILATION AND REVIEW ENGAGEMENTS
AR §80 and 90 provide guidance with respect to uncertainty about the entity's
ability to continue as a going concern. During the performance of compilation or
review procedures, evidence or information may come to your attention
indicating that there may be an uncertainty about the entity's ability to continue
as a going concern for a reasonable period of time. In those circumstances, you
should request that management consider the possible effects of the going
concern uncertainty on the financial statements, including the need for related
disclosure.
After management communicates the results of their consideration of the
possible effects on the financial statements, you should consider the
reasonableness of management's conclusions including the adequacy of the
related disclosures, if applicable.
If you conclude that the entity's disclosures with respect to the entity's ability to
continue as a going concern for a reasonable period of time are inadequate, a
GAAP departure exists.
38. FASB Going Concern Project
EFFECT ON REPORT WHEN DISCLOSURE IS ADEQUATE
When uncertainties related to the client's ability to continue as a going
concern exist, but are adequately disclosed in the financial statements,
AR §§80 and 90 state that it is not necessary to add a paragraph to the
standard compilation or review report describing the uncertainties.
On the other hand, AR §§80 and 90 state that although not required to
do so, you may consider drawing attention to this uncertainty in an
explanatory paragraph. If you decide to add such a separate
paragraph, it should not be referred to in the standard paragraphs of the
report.
You may add an emphasis paragraph to the compilation or review
report that contains wording similar to the following: As discussed in
Note X, certain conditions indicate that the Company may be unable to
continue as a going concern. The accompanying financial statements
do not include any adjustments to the financial statements that might be
necessary should the Company be unable to continue as a going
concern.
39. FASB Going Concern Project
REPORT MODIFICATION WHEN DISCLOSURE IS NOT
ADEQUATE
If the appropriate going-concern disclosures are not part
of the compiled or reviewed financial statements, your
report on the financial statements should include a
paragraph describing the departure from generally
accepted accounting principles (in this case, a disclosure
violation).
40. FASB Going Concern Project
When a business can no longer be considered a going
concern, financial statements should not be based on
accrual accounting but rather should reflect liquidation
values. If you become aware that the going-concern
concept is inappropriate but the client refuses to use the
liquidation basis to prepare the financial statements, you
should withdraw from the engagement.
41. FASB Going Concern Project
The SSARS also provide guidance to help determine whether the
adequate disclosure standard has been achieved when the ability of the
client to continue as a going concern is in question. A non-authoritative
exhibit to the SSARS Codification states that disclosures with respect to
the going-concern question could include:
Factors that are the basis for raising the question of going concern
Possible effects on the financial statements of the factors that raised the
question of going concern
Management's assessment of the significance of the factors and any
mitigating circumstances
Possible discontinuance of operations
Management's plans to deal with the current circumstances (including
relevant prospective information)
Information related to asset recoverability and classification and the
amount and classification of liabilities
42. FASB Going Concern Project
Omission of Disclosures
You may accept a compilation engagement whereby substantially all
disclosures are omitted from the financial statements. In such cases.
the following paragraph would be added to the compilation
report: Management has elected to omit substantially all of the
disclosures required by accounting principles generally accepted in the
United States of America. If the omitted disclosures were included in the
financial statements, they might influence the user’s conclusions about
the company's financial position, results of operations, and cash flows.
Accordingly, the financial statements are not designed for those who
are not informed about such matters.
When certain conditions suggest that the client may be unable to
continue as a going concern and the financial statements omit all or
substantially all disclosures, because the user is alerted that
substantially all disclosures have been omitted from the financial
statements (by the paragraph in the compilation report explaining the
omission), going concern disclosures are not required according to AR
§80.
43. FASB Going Concern Project
Omission of Disclosures (continued)
Under this reporting circumstance (substantially all disclosures are
omitted), you cannot emphasize the going concern matter in the
compilation report, because a report cannot introduce new information
that is not actually included in the financial statements. However, if the
financial statements' only disclosures are those related to the going
concern, you may emphasize the going Concern matter in the
compilation report but you are not required to do so.
Under this reporting circumstance (only the going concern matter is
disclosed) the disclosures should not be labeled as "Notes to the
Financial Statements" but, rather, should be described as "Selected
Information- Substantially All Disclosures Required by Generally
Accepted Accounting Principles Are Not Included."
44. FASB Going Concern Project
A client may request that you eliminate a going-concern
emphasis-of-a-matter paragraph from a previously issued
report when the uncertainty has been removed in a
subsequent accounting period.
You should evaluate such a request for a reissued report with
caution.
You should also:
obtain information about the mitigating event or transaction
that prompted the client request for a reissued report and
reassess the going-concern status of the entity at the date
of reissuance in light of conditions and circumstances
existing at that date.
45. Connect with me
Derek Daniel, CPA
Assurance Manager
256.517.1111
derekdaniel@decosimo.com
On LinkedIn:
http://www.linkedin.com/pub/derek-
daniel/5/253/267
Disclaimer:
The contents of this presentation are for informational purposes only. The information is not intended to be a substitute for
professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you
may have regarding your financial goals or specific situations.