Updates for CPAs: going concern and location of debt issue costs
The accelerating pace of change doesn’t slow down merely because I have multiple audits in progress plus more that just started. Here are a few articles to help keep all of us up to date on two newly effective standards:
For a long time the professional requirements for addressing going concern issues have been located in the audit literature. Yeah, the accounting requirement was in the audit standards. There has been an effort for several years to this guidance out of the SASs and into GAAP. Two articles show the substantial progress:
11/8/16 – Charles Hall at CPA-Scribo – It’s Time to Apply FASB’s New Going Concern Standard – ASU 2014-15 creates a requirement in GAAP for management to assess whether there are conditions or events which raise substantial doubt about ability to continue as going concern.
This is effective for financial statements ending on or after December 15, 2016. Translation: 12/31/16 financial statements. That would be the ones you’re auditing or reviewing or compiling at the moment.
If you haven’t tuned into this new requirement, check out Mr. Hall’s article before you download the ASU for study. Hint: the new requirements on management will seem remarkably familiar.
In case you hadn’t thought about it, having a GAAP-based going concern requirement placed on management means that there is now a specific need to address going concern in a review or comp.
2/22/17 – Accounting Today – AICPA changes going concern audit standard – Now that the going concern requirements are in GAAP, the ASB has modified the rules in the audit literature.
The document is Statement on Auditing Standards No. 132, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern. This supersedes SAS 126. Yep, the old audit requirements to address going concern just went away.
The effective date, according to paragraph 9 of SAS 132, will be for
… audits of financial statements for periods ending on or after December 15, 2017
Translation: our 12/31/17 audits.
SAS 132 is applicable whether or not the applicable financial reporting framework contains going concern requirements. This further separates the audit literature from the requirements of FASB, GASB, FASAB, FRF-SME, cash basis, and any other basis of accounting.
Paragraph 3 has a good summary of the auditor’s responsibility:
a. Conclude, based on the audit evidence obtained, whether substantial doubt exists about an entity’s ability to continue as a going concern for a reasonable period of time
b. Evaluate the possible financial statement effects, including the adequacy of disclosure regarding the entity’s ability to continue as a going concern for a reasonable period of time
If you are an auditor you might want to check out the article for a survey and then download the SAS for later study.
Debt issue costs moved to the right side of the balance sheet
4/9/15 (yes, it’s an oldie but goodie) – Charles Hall at CPA-Scribo – Debt Insurance Costs Gets a New Parking Place – ASU 2015-03 requires moving the deferred debt issuance costs from the asset side of the balance sheet to the liability side, presented as a deduction from long-term debt.
Effective date is fiscal years beginning after December 15, 2015. Translation: 12/31/16 financial statements.
As with the going concern standard described above, the move of debt issue costs applies for the new year-end engagements you have on your desk.
If this change is a little fuzzy in the back recesses your brain, check out Mr. Hall’s article for a refresher. There is a link to the full standard at the end of the article.