AICPA Revises Auditing Standard on Going Concerns

The AICPA’s Auditing Standards Board (ASB) has issued Statement on Auditing Standards (SAS) No. 132, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (AICPA, Professional Standards, AU-C sec. 570).

SAS No. 132 supersedes SAS No. 126 of the same title and will be effective for (i) audits of financial statements for periods ending on or after December 15, 2017, and (ii) reviews of interim financial information for interim periods beginning after fiscal years ending on or after December 15, 2017.

The primary objective in the development of SAS No. 132 was to consider the accounting provisions of FASB Accounting Standards Update (ASU) No. 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, and GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards.

Significant changes to the existing auditing standards resulting from the issuance of SAS No. 132 include:

Auditor’s Objectives and Related Conclusions

SAS No. 132 clarifies that the auditor’s objectives include separate determinations and conclusions with respect to (1) the use of the going concern basis of accounting, when relevant, in the preparation of the financial statements, and (2) 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.

Financial Support by Third Parties or the Entity’s Owner-Manager

SAS No. 132 includes a new requirement and application material with respect to financial support by third-parties or the entity’s owner-manager.

Interim financial information

SAS No. 132 amends AU-C 930, Interim Financial Information, to reflect a new requirement for the auditor to include an emphasis-of-matter paragraph in the review report when certain conditions or events exist related to substantial doubt about an entity’s ability to continue as a going concern.

Financial statements prepared in accordance with a special-purpose framework

SAS No. 132 clarifies that the going concern basis of accounting may or may not be relevant in the preparation of complete set of financial statements. Irrespective of whether the going concern basis of accounting is relevant in the preparation of special purpose financial statements, the auditor is required to conclude whether substantial doubt exists and to evaluate the possible financial statement effects.

The full text of the new standard can be viewed at http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/SAS_132.pdf

In a related development the AICPA will host a webcast, “Understanding the Revised Going Concern Standard” on Friday, February 24 from 2:00 to 3:00 p.m. (EDT). The speaker will be Steven Morrison, CPA, a principal in the Audit Department at MBAF and a member of the ASB. For more information about the webcast, visit http://www.aicpastore.com/AST/Main/CPA2BIZ_Primary/PRDOVR~PC-WC1352121/PC-WC1352121.jsp.