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Course Materials Going Concern: The Growing Concern NASBA INFORMATION SmartPros Ltd, producer of this CPE program, is registered with the National Association of State Boards of Accountancy (NASBA) as a Quality Assurance Service (QAS) sponsor of continuing professional education, (QAS Sponsor #009). State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding QAS program sponsors may be submitted to NASBA through its website: www.learningmarket.org. ADP has partnered with SmartPros to provide this program and SmartPros has prepared the material within. www.smartpros.com 101512 segment one segment one segment one
1
1. Going Concern: The Growing Concern
Learning
Objectives:
Upon successful completion of this segment, you should be able to:
• explain the going-concern assumption;
• define “foreseeable future” for purposes of going concern;
• distinguish between IFRS and GAAP in terms of management’s
responsibility for going concern;
• identify the objectives of FASB’s project on risks and
uncertainties.
Segment
Overview:
Even though the going-concern assumption is universally
understood and accepted by accounting professionals, it has never
been formally incorporated into U.S. GAAP. Loscalzo Associates’
Bruce Pounder provides us with an update on the responsibility
of both auditors and management in assessing an entity’s ability
to continue as a going concern.
Field of Study:
Auditing
Course Level:
Course
Prerequisites:
Advance
Preparation:
Recommended
Accreditation:
Required
Reading
(Self-Study):
Update
Work experience in financial reporting or auditing,
or an introductory course in accounting
None
1 hour group live
2 hours self-study
“The Going-Concern Assumption: Its Journey into GAAP”
By Professor William Hahn, Southeastern University
Excerpted with permission of The CPA Journal
For additional information, go to: www.cpajournal.com
“FASB Proposes Requirements for the Liquidation Basis of Accounting”
By Robert P. Skubic, KPMG Department of Professional Practice
Excerpted with permission of Defining Issues
For additional information, go to:
www.kpmginstitutes.com/financial-reporting-network
See page 11.
Video
Transcript:
See page 18.
Running Time:
27 minutes
outline outline outline outline outline
2
Outline
I.
Going-Concern Assumption
A. SAS No. 59
1. Provides U.S. guidance
a. on entity’s ability to continue as
a going concern
2. Substantial doubt for a reasonable
period
a. not more than one year
B. New FASB Project on Risks and
Uncertainties
1. Develop principle for entity to
determine adequacy of disclosures
2. Evaluate how to improve content of
disclosures
C. Going Concern Assumption
1. Underlying tenet of GAAP
2. Entities are going to be in existence
a. for foreseeable concept
D. Auditors’ Expression of “Substantial
Doubt”
1. Over GM’s ability to continue as
going concern in 2009
2. Required reporting under SAS
No. 59
II. Responsibility for “Going Concern”
A. U.S. GAAP
1. Management has no responsibility
a. to disclose observations about
going concern
B. Under IFRS
1. Management must express concerns
a. about entity’s ability to continue
as going concern
C. Under IAASB
1. Auditors must consider
appropriateness
a. of management’s going concern
assumption
D. What Is Considered in Going Concern
Assessment
1. IFRS: no limit as to what
management should consider
2. SAS No. 59: auditors primarily
consider financial statements
E. If FASB Incorporates Going Concern
in GAAP
1. It may also remain in auditing
standards under GAAS
2. Financial statement users want audit
of management’s disclosures
outline outline outline outline outline
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Outline (continued)
III. Making a Going Concern Assessment
A. Dimensions of Standard Setting on
Going Concern
1. Who is responsible for making
assessment?
2. What information goes into
assessment?
3. How far in future should assessment
look?
B. “Foreseeable Future” for Going
Concern Assessment
1. U.S. auditing standard: 12-month
maximum
2. IFRS: no limit on time period
3. Proposed GAAP by FASB: 12month minimum
C. Change in FASB Attitude toward Going
Concern
1. “We need to get this guidance into
GAAP”
2. “No, we don’t”
3. “We’re looking at the issue again”
D. Role of Management vs. Role of
Auditor
1. Even when going concern is
management’s responsibility
a. people lack confidence in
management’s candor
2. Value in requiring auditors to
consider appropriateness
a. of management’s going concern
assumption
IV. Risk and Uncertainties
A. Disclosures about Risk and
Uncertainties
1. Are important
2. Are different than assessment of
going concern
B. Management’s Disclosure of Risk and
Uncertainties
1. May not provide a basis for
conclusion about going concern
C. Liquidation Basis of Accounting
1. Used when entity is NOT a going
concern
2. Presents assets and liabilities at net
realizable values
D. FASB: Use Liquidation Basis
1. If liquidation is imminent
2. Whether liquidation is
a. voluntary
b. compelled
c. secretly planned
3. What are potential “triggers” or
considerations?
outline outline outline outline outline
4
Outline (continued)
V. Going Forward with Going Concern
A. Progression of FASB guidance
1. Going concern: intended to mirror
IFRS
2. Risk and uncertainties: would not
converge standards
a. one of several areas without
convergence
C. Policy Considerations
1. Disclosures on risk and uncertainties
will not provide
a. same level of conclusiveness as
adverse going concern
2. Is it possible for FASB to avoid
“disclosure overload”?
B. For Disclosures on Risk and
Uncertainties
1. How do you measure risk?
2. How do you communicate risk?
VI. The Future of Convergence
A. Convergence of Accounting Languages
1. Current rules: public companies
must use GAAP
a. in financial statements submitted
to SEC
2. Proposed condorsement:
continuation of use of GAAP
a. rather than “wholesale switch” to
IFRS
B. Frustration over Convergence Process
1. Based on target dates, rather than
deadlines
2. Keep “resetting” target dates
3. Processes may not be effective in
dealing with convergence
C. Likely Scenarios
1. Time to “hedge” bets on
convergence?
2. SEC
a. may not require U.S. companies
to switch to IFRS
b. may allow U.S. companies to
switch to IFRS
discussion questions discussion questions
5
Group Discussion
Instructions for Segment
• As the Discussion Leader, you should
introduce this video segment with words
similar to the following:
“In this segment, Bruce Pounder
explains the responsibility of auditors
and management in assessing an entity’s
ability to continue as a going concern.”
• After playing the video, use the
questions provided or ones you have
developed to generate discussion.
The answers to our discussion questions
are on pages 7 and 8. Additional
objective questions are on pages 9 and
10.
• Show Segment 1. The transcript of this
video starts on page 18 of this guide.
Discussion Questions
1. Going Concern: The Growing Concern
You may want to assign these discussion questions to individual participants before viewing
the video segment.
1. Bruce Pounder believes that accountants
have an inherent understanding of the
going-concern assumption: that entities
are going to be in existence for the
foreseeable future. Do you agree with
their observation? To what extent do
you consciously recall that financial
reporting is based on the fact that a
business is expected to survive for the
foreseeable future?
2. Bruce Pounder cites the going-concern
modification for General Motors as an
indication that more attention is paid to
going concern during economic
recessions. Do you agree with his
observation? To what extent have you
had discussions during the recent
recession considering the going concern
status of your clients’ entities, of your
clients’ suppliers/vendors, or of your
clients’ customers?
3. Does the management of your clients’
organizations feel responsible for
making an assessment of going
concern? To what extent have you (or
your firm) considered issuing a goingconcern modification in recent years?
4. What information do you (or your firm)
consider in making a going concern
assessment of your organization? What
information should be considered? To
what extent do you, or should you,
consider nonfinancial information, such
as the viability of a business plan?
5. How far into the future do you (or your
firm) look in making a going concern
assessment of your clients? How far
should you look? To what extent do
you, or should you, consider events that
are more than one year away?
discussion questions discussion questions
6
Discussion Questions (continued)
6. Under FASB’s guidance, when should a
business use the liquidation basis of
accounting? How does it differ from
GAAP? Are you familiar with any
companies (or clients) that have used
the liquidation basis?
7. On one hand, FASB’s project on risk
and uncertainties aims to “evaluate how
to improve the content of business
disclosures.” On the other hand, many
observers – including FASB’s own chair
– believe that we suffer from “disclosure
overload.” From your perspective, do
we require companies to disclose too
much information? How do you balance
the needs of financial statement users
with management’s responsibilities?
suggested answers to discussion questions
Suggested Answers to Discussion Questions
1. Going Concern: The Growing Concern
1. Bruce Pounder believes that accountants
have an inherent understanding of the
going-concern assumption: that entities
are going to be in existence for the
foreseeable future. Do you agree with
their observation? To what extent do
you consciously recall that financial
reporting is based on the fact that a
business is expected to survive for the
foreseeable future?
• Participant response is based on your
background (education and values),
your perspective (clients and practice
structure), and your experience
(engagements).
2. Bruce Pounder cites the going-concern
modification for General Motors as an
indication that more attention is paid to
going concern during economic
recessions. Do you agree with his
observation? To what extent have you
had discussions during the recent
recession considering the going concern
status of your clients’ entities, of your
clients’ suppliers/vendors, or of your
clients’ customers?
• Participant response is based on your
background (education and values),
your perspective (clients and practice
structure), and your experience
(engagements).
3. Does the management of your clients’
organizations feel responsible for
making an assessment of going
concern? To what extent have you (or
your firm) considered issuing a goingconcern modification in recent years?
• Participant response is based on your
background (education and values),
your perspective (clients and practice
structure), and your experience
(engagements).
4. What information do you (or your firm)
consider in making a going concern
assessment of your organization? What
information should be considered? To
what extent do you, or should you,
consider nonfinancial information, such
as the viability of a business plan?
• Participant response is based on your
background (education and values),
your perspective (clients and practice
structure), and your experience
(engagements).
5. How far into the future do you (or your
firm) look in making a going concern
assessment of your clients? How far
should you look? To what extent do
you, or should you, consider events that
are more than one year away?
• Participant response is based on your
background (education and values),
your perspective (clients and practice
structure), and your experience
(engagements).
6. Under FASB’s guidance, when should a
business use the liquidation basis of
accounting? How does it differ from
GAAP? Are you familiar with any
companies (or clients) that have used
the liquidation basis?
• Liquidation basis of accounting is
used only when an entity is NOT a
going concern, because liquidation is
imminent.
• It differs from GAAP in the sense
that assets and liabilities are
presented at net realizable values.
• Participant response is based on your
background (education and values),
your perspective (clients and practice
structure), and your experience
(engagements).
7
suggested answers to discussion questions
8
Suggested Answers to Discussion Questions
7. On one hand, FASB’s project on risk
and uncertainties aims to “evaluate how
to improve the content of business
disclosures.” On the other hand, many
observers – including FASB’s own chair
– believe that we suffer from “disclosure
overload.” From your perspective, do
we require companies to disclose too
much information? How do you balance
the needs of financial statement users
with management’s responsibilities?
• Participant response is based on your
background (education and values),
your perspective (clients and practice
structure), and your experience
(engagements).
9
objective questions objective questions
Objective Questions
1. Going Concern: The Growing Concern
You may want to use these objective questions to test knowledge and/or to generate further
discussion; these questions are only for group discussion purposes. Most of these questions
are based on the video segment; a few may be based on the required reading for self-study
that starts on page 11.
1. Under IFRS, a company’s management
analyzes _________ in order to assess
their company’s ability to continue as a
going concern.
a) all available information
b) working capital deficiencies
c) the entity’s business model
d) relevant external factors
2. Now that FASB’s going concern project
has gone in a different direction, it is
likely to result in:
a) convergence with the IFRS going
concern requirements.
b) management being responsible for
assessing going concern in the U.S.
c) continued differences between GAAP
and IFRS over going concern.
d) a 3-year timeframe for events to be
considered for a going concern
assessment.
3. The main reason for concern over
management’s responsibility for the
going concern assessment is:
a) the ASB believes this role should
remain only with the auditors.
b) the public does not trust company
management to be completely candid.
c) the SEC believes that public
companies need separate guidance in
this area.
d) Canada and other countries have had
difficulty in implementing the IFRS
model.
4. A roadblock to adopting IFRS goingconcern guidance in the U.S. has been:
a) the auditing profession’s resistance to
any change.
b) companies’ need for principle-based
guidance.
c) the nature, and litigiousness, of U.S.
society.
d) FASB’s desire to avoid convergence
with IFRS.
5. According to Bruce Pounder, FASB’s
proposed risk and contingency
disclosures are:
a) unnecessary.
b) tantamount to a going concern
assessment.
c) do not provide a going concern
assessment.
d) likely to be converged with IFRS.
6. Bruce Pounder believes the liquidation
basis of accounting is similar to:
a) GAAP.
b) income tax basis.
c) modified cash basis.
d) none of the above.
7. Ultimately, Bruce Pounder envisions a
situation where the SEC:
a) may not require public companies to
switch to IFRS.
b) may allow U.S. companies to switch
to IFRS.
c) will require public companies to
switch to IFRS.
d) both a) and b), but not c).
8. According to the required reading, the
first documented use of the term “going
concern” was traced to:
a) Henry Rand Hatfield.
b) Lawrence Dicksee.
c) John R. Commons.
d) the Committee on Accounting
Procedure.
objective questions objective questions
10
Objective Questions (continued)
9. According to the required reading,
FASB’s original proposed going concern
standard elicited all of the following
concerns except:
a) concern that “all available
information” to be considered by
management was too broad.
b) doubt about the appropriateness of
incorporating the going concern
guidance into GAAP.
c) concern that the time frame for
consideration of going concern issues
was too long and open-ended.
d) concern over conflicting disclosure
requirements between the proposal,
IAS 1, and AU section 341.
10. According to the required reading,
under which of the following
circumstances would the liquidation
basis of accounting be inappropriate?
a) A liquidation that is expected to
conclude earlier than the
contractually stated expiration date
of the entity
b) An involuntary bankruptcy
c) A liquidation that takes place
pursuant to an entity’s governing
documents
d) A liquidation approved by
management and unlikely to be
blocked by other parties
required reading required reading
11
Self-Study Option
Instructions for Segment
When taking a segment on a self-study basis, an individual earns CPE credit by doing the
following:
1. Viewing the video (approximately 25
minutes). The transcript of this video
starts on page 18 of this guide.
3. Completing the online steps
(approximately 55 minutes).
2. Completing the Required Reading
(approximately 20 minutes). The
Required Reading for this segment
starts below.
Required Reading (Self-Study)
THE GOING-CONCERN ASSUMPTION:
ITS JOURNEY INTO GAAP
By Professor William Hahn,
Southeastern University
Excerpted with permission of
The CPA Journal
For additional information, go to:
www.cpajournal.com
whether there is substantial doubt about the
entity’s ability to continue as a going
concern for a reasonable period of time.” If
there is substantial doubt, an explanatory
paragraph should be included in the
auditors’ report.
The going-concern assumption is
universally understood and accepted by
accounting professionals. Indeed, the
assumption of a going concern is critical to
the decision usefulness of financial
information under the accrual basis of
accounting. It is also the justification for
valuing most assets at historical cost. It
has, however, received little attention in the
accounting literature and has never been
formally incorporated into U.S. GAAP.
This responsibility often places an auditor
in an uncomfortable position with clients.
Research conducted by Audit Analytics
reveals that, over a 10-year period
(2000–2009), an average of 18.5% of all
audit opinion letters included a goingconcern modification. This is about 2,950
modifications each year for SEC filers.
Even though users understand that
management is responsible for the form
and content of a business’s financial
statements, there is no official guidance
requiring management to assess their
entity’s ability to continue as a going
concern. Currently, AU section 341
provides the only formal guidance in this
area. This section states, in part, that “the
auditor has a responsibility to evaluate
Short History of the GoingConcern Assumption
The first documented use of the term
“going concern” was traced by economist
John R. Commons to a 1620 lawsuit in
which the value of assets was in dispute. In
this lawsuit, the court distinguished
between a going-concern value and a value
tantamount to the current concept of
historical cost.
required reading required reading
12
Following the 1620 case, the going-concern
idea remained mainly in the legal domain
(primarily related to entity value
determination) until 1892, when Lawrence
R. Dicksee published Auditing: A Practical
Manual for Auditors. As reported by R.K.
Storey, Dicksee argued that assets should
be valued on a going-concern basis and not
adjusted for “a fluctuation in value caused
by external circumstances.” Clearly,
Dicksee viewed the going-concern idea as a
basis for accounting for assets using
historical costs.
While the literature is incomplete on how
the going-concern idea was presented and
debated after Dicksee’s book formalized
the discussion in 1892, Storey reports that
the next major step was Henry Rand
Hatfield’s 1909 book, Modern Accounting:
Its Principles and Some of Its Problems,
which included the going-concern
assumption. In a 1927 book, Accounting:
Its Principles and Problems, Hatfield
expanded his discussion of the goingconcern assumption, indicating that the
concept was generally accepted among
practicing accountants of that era.
Remember, there was no formal standardssetting body at the time Dicksee and
Hatfield were writing about the goingconcern assumption. While groups that
were precursors of the AICPA existed
between 1887 and 1939, the first formal
group to promulgate accounting principles
was the Committee on Accounting
Procedure (CAP), which was a subgroup of
the American Institute of Accountants (the
forerunner of today’s AICPA). The CAP
issued 51 Accounting Research Bulletins
(ARB) between 1939 and 1959.
The first introduction of the going-concern
assumption into the formal accounting
literature occurred in 1953, when the CAP
issued ARB 43, Restatement and Revision
of Accounting Research Bulletins. In
chapter 3, section A, “Current Assets and
Current Liabilities,” of that bulletin, the
CAP asserted: “It should be emphasized
that financial statements of a going concern
are prepared on the assumption that the
company will continue in business.” This
assertion established the importance of
continuity as a basis for the decision
usefulness of financial statements.
In 1961, the AICPA issued Accounting
Research Study 1, The Basic Postulates of
Accounting. In this document, crafted by
Maurice Moonitz, postulate C-1 states the
following:
Continuity (including the correlative
concept of limited life). In the
absence of evidence to the contrary,
the entity should be viewed as
remaining in operation indefinitely.
In the presence of evidence that the
entity has a limited life, it should
not be viewed as remaining in
operation indefinitely.
The continuity postulate was listed along
with objectivity, consistency, stable
measuring unit, and disclosure as essential
to effective accounting and financial
reporting.
In 1978, FASB issued Statement of
Financial Accounting Concepts (SFAC) 1,
Objectives of Financial Reporting by
Business Enterprises. Paragraph 42 of this
statement states the following:
Financial reporting should provide
information about an enterprise’s
financial performance during a
period. Investors and creditors often
use information about the past to
help in assessing the prospects of an
enterprise. Thus, although
investment and credit decisions
reflect investors’ and creditors’
expectations about future enterprise
performance, those expectations are
commonly based at least partly on
evaluations of past enterprise
performance.
It is only in footnote 10 of SFAC 1 that the
going-concern assumption is mentioned.
Footnote 10 states, in part, the following:
Investors and creditors ordinarily invest in
or lend to enterprises that they expect to
continue in operation – an expectation that
is familiar to accountants as “the going
concern” assumption.
In 1989, the AICPA issued Statement on
Auditing Standards (SAS) 59, The
Auditor’s Consideration of an Entity’s
Ability to Continue as a Going Concern
(later incorporated in AU section 341),
required reading required reading
13
which, as previously discussed, placed the
burden of a going concern determination on
the auditor. Paragraph .02 states the
following:
The auditor has 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
(hereinafter referred to as a
reasonable period of time).
As the international standards convergence
movement gathered momentum, the AICPA
and FASB moved to formalize the goingconcern assumption into published
guidance. The AICPA included a goingconcern requirement in its 2008 Omnibus
Statement on Standards for Accounting and
Review Services (SSARS) 17. This section,
in paragraph 69, added the following
language:
During the performance of
compilation or review procedures,
evidence or information may come to
the accountant’s 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, not to exceed one
year beyond the date of the financial
statements being compiled or
reviewed (hereinafter referred to as a
reasonable period of time). In those
circumstances, the accountant should
request that management consider the
possible effects of the going concern
uncertainty on the financial
statements, including the need for
related disclosure.
Finally, in 2008 FASB issued its proposed
SFAS, Going Concern, discussed below.
Proposed Going-Concern
Standard
The proposed statement on going concern
has been in exposure draft form since
October 9, 2008, and the impetus for its
issuance is the convergence with
international standards. The language set
forth in the exposure draft is almost
identical to that of sections 25 and 26 of
International Accounting Standard (IAS) 1,
Presentation of Financial Statements. There
are only two areas of difference between the
standards. First, there are a few phrasing
differences which are simply a matter of
writing style. Second, the guidance is
presented in two paragraphs in the
international standard, whereas it is in four
paragraphs (three, four, seven, and eight) in
the proposed standard.
Paragraph three of the proposed guidance
clearly establishes responsibility in this area.
Paragraph three states, in part, that
“management shall assess the reporting
entity’s ability to continue as a going
concern.” Paragraph four suggests a
minimum 12-month forward time horizon
over which management should evaluate
“current and expected profitability, debt
repayment schedules, and potential sources
replacement financing” as aspects of a
comprehensive going concern assessment.
If, after such assessment, management
concludes that there is substantial doubt as
to the organization’s ability to continue as a
going concern, it must disclose that
conclusion. In addition, the proposed
standard requires that management set forth
the reasons why such a determination was
made, as well as the basis upon which the
current-year financial statements are
presented.
In a going-concern assessment, paragraph
five of the exposure draft sets forth
examples of events that, either individually
or in concert with each other, could lead
management to conclude that substantial
doubt exists as to the ability of an
organization to continue as a going concern.
Examples provided by FASB are negative
performance trends in the areas of
profitability or cash flow, as well as
significant events such as a regulatory order,
loan default, or creditor unwillingness to
engage in business. In addition, internal
operational problems and “external matters
such as legal proceedings, legislation, loss
of a key business franchise, license, or
patent, customer, or environmental
occurrence” may contribute to
management’s determination. If such a
determination is made, paragraph six
required reading required reading
14
provides specific information management
should consider in deciding how to deal
with the conditions and events that inhibit
going-concern capacity as well as the
likelihood that such plans can be
implemented successfully.
Should management conclude that
substantial doubt exists as to the ability of
an organization to continue as a going
concern, paragraph seven of the proposed
standard requires the disclosure of the basis
for such an assessment and any course of
action that management plans to pursue in
order to attempt to return the organization
to going concern status.
Comments on the Exposure
Draft
Those responding to the exposure draft
generally agreed with FASB’s proposed
move to include a going-concern
assessment in GAAP. Nevertheless,
concerns were expressed in four areas: 1)
the types of information required as part of
management’s assessment, 2) the time
horizon over which such an assessment
must be made, 3) specific disclosure
requirements, and 4) the definition of a
going concern.
1) Types of information required. The
first area of concern revolves around a
change in wording from AU section 341 to
the proposed standard. In paragraph .02 of
AU section 341, an auditor is required to
consider “knowledge or relevant conditions
and events that exist at or have occurred
prior to the date of the auditor’s report,”
whereas the proposed standard (paragraph
four) requires management to consider “all
available information about the future.”
Commenters argued that the “all available
information” wording was too broad and
implied that management would need to
assess unlimited amounts of information
into an unforeseeable future. Others
contended that the cost of conducting a
going concern assessment of the scope
required by the exposure draft would be too
high with respect to the benefits realized
from such an assessment. Finally, some
thought that the wording would result in
inconsistent application in practice.
FASB decided to modify paragraph four of
the proposed standard by removing the
word “all.” As revised, this aspect of the
standard will read “management shall take
into account available information.”
2) Time horizon. The time horizon set
forth in the exposure draft drew the most
attention from commenters. Critics argued
that the time horizon is too long and too
nebulous, that it will be difficult for
practitioners to apply, that the language
conflicts with time frames set forth in
GAAS, and that the proposed time frame
could have legal ramifications. The areas of
greatest concern were the workability of
the open-ended time frame in the U.S. legal
environment and an apparent conflict with
currently existing auditing guidance that
uses a one-year time frame (e.g., SOP 94-6,
Disclosure of Certain Significant Risks and
Uncertainties; SFAS 6, Classification of
Short-Term Obligations Expected to Be
Refinanced; and AU section 341).
FASB decided to modify the time frame so
that events beyond one year in the future
must be compelling if they are to be
considered in the going-concern
assessment. In their rationale for this
change in language, FASB indicated that
the definition is not intended to be openended or indefinite. To clarify this intent,
the first two sentences of paragraph four
will be changed to read as follows:
In assessing whether the going-concern
assumption is appropriate, management
shall 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.
required reading required reading
15
Thus, 12 months was set as the workable
time frame, but FASB’s modification allows
for professional judgment in extending the
time frame beyond 12 months, based on
known facts and circumstances.
3) Disclosure requirements. A third area of
concern is related to the disclosure of goingconcern circumstances. Commenters pointed
out that there is inconsistency between the
proposed disclosures and those in IAS 1, as
well as the omission of certain disclosures
currently set forth in AU section 341,
paragraph 11. Respondents also noted that it
was unclear as to whether disclosures were
required in each year’s annual report only if
there is doubt as to an organization’s ability
to continue as a going concern. Finally, it
was suggested that the proposed language be
changed to explicitly state that management
had made a determination as to goingconcern status.
At its January 13, 2010, meeting, FASB
considered the use of the term “substantial
doubt” as it appears in paragraph seven of
the exposure draft. Based on the comments
received, the board concluded that the
language should be modified. The two
possibilities under consideration are: “it is
more than remote that the entity will not
continue as a going concern,” and “it is
more likely than not that the entity may not
continue as a going concern.”
4) Going concern definition. Finally, the
proposed standard does not contain a
definition of a going concern. Commenters
suggested that FASB include a definition in
order to provide the clarity that would
remove judgment and uncertainty in this
area.
Journey’s End
Whenever issued, the going-concern
guidance will appear in the Accounting
Standards Codification (ASC) section 205,
“Presentation of Financial Statements.” For
example, section 205-30-45-1, “Other
Presentation Matters,” is proposed to read,
in part:
When preparing financial statements,
management shall assess the
reporting entity’s ability to continue
as a going concern. An entity shall
prepare financial statements on a
going concern basis unless
management either intends to
liquidate the entity or to cease
operations or has no realistic
alternative but to do so.
FASB PROPOSES REQUIREMENTS FOR THE
LIQUIDATION BASIS OF ACCOUNTING
By Robert P. Skubic, KPMG Department of
Professional Practice
Excerpted with permission of
Defining Issues
For additional information, go to:
www.kpmginstitutes.com/financial-reportingnetwork
The FASB recently issued a proposed
Accounting Standards Update (ASU) that
would provide guidance about when an
entity would be required to prepare its
financial statements using the liquidation
basis of accounting. Under that accounting
basis, an entity would be required to
measure and present assets and liabilities at
the estimated amount of cash that the entity
expects to collect or pay to settle its
obligations during liquidation. Comments
are due by October 1, 2012.
Current U.S. GAAP provides minimal
guidance about applying the liquidation
basis of accounting. The proposed ASU’s
objective is to eliminate diverse practices by
providing guidance about when it is
appropriate to apply the liquidation basis of
accounting and how to apply it. Originally,
an additional objective of the project was to
incorporate current auditing guidance on
reporting when there is doubt about an
entity’s ability to continue as a going
required reading required reading
16
concern and to determine whether or not
U.S. GAAP should require management to
assess if the entity will be able to continue
as a going concern, and if so, how it should
conduct the assessment. However, the
FASB subsequently decided to separate the
deliberations related to the liquidation basis
of accounting from those related to the
going concern assessment. The FASB will
address going concern considerations as the
second phase of the project on
management’s responsibility for going
concern assessments.
Liquidation Basis of
Accounting
Under the proposed ASU, the liquidation
basis of accounting would be applied when
liquidation is imminent. Liquidation would
be considered imminent when either of
liquidation is imminent. Liquidation would
be considered imminent when either of the
following occurs:
•
A plan of liquidation has been
approved by the person or persons with
the authority to make this plan effective
and the likelihood is remote that the
execution of the plan will be blocked
by other parties (e.g., those with
protective rights); or
•
A plan for liquidation has been
imposed by other forces (e.g.,
involuntary bankruptcy) and the
likelihood is remote that the entity will
return from liquidation status.
If a plan for liquidation is specified in an
entity’s governing documents at its
inception (e.g., limited-life entity) and
liquidation will occur under the original
plan, the liquidation basis would not be
applied. Instead, liquidation would be
considered imminent for such entities if
significant management decisions about
furthering the ongoing operations of the
entity have ceased or they are substantially
limited to those necessary to carry out a
plan for liquidation other than the plan
specified at inception (i.e., there have been
substantial changes in its original limitedlife plan).
The proposed ASU includes a list of
indicators that imply a plan for liquidation
might differ from what was specified in the
governing documents:
•
The date that liquidation is expected to
conclude is earlier or later than the
contractually stated expiration date of
the entity.
•
The entity is forced to dispose of its
assets in a manner that is not orderly or
in exchange for consideration that is
not commensurate with the fair value
of the assets.
•
The entity’s governing documents have
been amended since inception.
Financial statements prepared under the
liquidation basis of accounting would
reflect an entity’s resources and obligations
in liquidation by measuring and presenting
assets and liabilities in the entity’s financial
statements at the estimated amount of cash
or other consideration that the entity
expects to collect or pay to carry out its
liquidation plan. Liquidation amounts
would not necessarily be expected to be at
fair value and, therefore, the guidance on
fair value measurement would not
necessarily apply when estimating these
amounts. Additionally, the measurement
would include accrual of the estimated
costs of disposing of assets and settling
liabilities as well as accrual of the expected
future costs and income to be incurred and
generated through the date at which the
entity expects to complete its liquidation.
Effective Date and
Transition
The FASB has not determined a specific
effective date. However, the proposed ASU
would be effective as of the beginning of
an entity’s first annual reporting period that
begins after the effective date and for
interim and annual periods thereafter. Early
adoption would be permitted. The FASB
will determine the effective date after it
considers constituents’ feedback.
required reading required reading
17
Separate FASB Project to
Address Going Concern
In May, the FASB decided to separate its
project on liquidation basis of accounting
and going concern into two phases. The
proposed ASU addresses the first phase of
the project. The objective of the second
phase is to provide guidance about (1)
whether and how an entity should assess its
ability to continue as a going concern and
(2) if so, the nature and extent of any related
disclosure requirements. The Board directed
the FASB staff to prepare materials to
discuss at a future Board meeting but has
not yet scheduled deliberations on the
second phase.
video transcript video transcript
18
Video Transcript
1. Going Concern: The Growing Concern
LOOK:
On one hand, it is management’s job to explain a company’s financial
position to investors. But, on the other hand, there seems to be little
faith – by regulators or by standard setters – in the ability of those
executives to be candid when the company is in danger of “going
under.” As a result, the FASB will not require management to assess
whether there is substantial doubt about an entity’s ability to continue
as a going concern.
Earlier this year, the accounting standard setter announced that a
majority of its board members determined that such a requirement
would be difficult to apply. As a result, AICPA Statement on Auditing
Standards No. 59, “The Auditor’s Consideration of an Entity’s Ability
to Continue as a Going Concern,” continues to provide the U.S.
guidance on this topic.
Information obtained during a financial statement audit is the basis for
this evaluation.
SAS no. 59 states that the auditor is responsible for evaluating,
whether there is substantial doubt about the entity’s ability to continue
as a going concern for a reasonable period, not more than one year
beyond the date of the financial statements being audited.
Under the FASB proposal, management would have been required to
take into account all available information about the future, which was
defined as at least – but not limited to – 12 months from the end of the
reporting period. Instead, the FASB has redirected its project:
One, to develop a principle for an entity to determine the adequacy of
its disclosures about risks and uncertainties; and
Two, to evaluate how the content of those disclosures could be
improved.
But the question remains: how do we give investors and other financial
statement users fair warning when a company is in danger of “going
under”?
QUINLAN:
That, indeed, is the question, Alice. And returning to our program –
with the answer – is regular expert commentator Bruce Pounder,
producer of “This Week in Accounting.” Thanks for joining us this
month, Bruce.
POUNDER:
Glad to be back, Mike.
QUINLAN:
Let me start out with a baseline question for you, Bruce: it seems as if
most accountants understand – and really accept – the going-concern
assumption, doesn’t it?
POUNDER:
Accountants certainly do accept that assumption, maybe not very
consciously though. It is “baked” into GAAP as a conceptual principle:
there is an assumption that the entity will continue as a going concern,
unless it becomes apparent otherwise. But because that is a relatively
rare occurrence, or at least it is admitted relatively rarely, then we are
video transcript video transcript
19
going to see, in most cases, companies will report on a going concern
basis, that, is on the assumption that they are going to continue as going
concerns.
QUINLAN:
Very few things in life are as inevitable as death and taxes. But one of
those inevitabilities is the business cycle. There are going to be ups, and
there are going to be downs. And whenever there are “downs,” it seems
as if there are growing concerns over entities’ so-called going concern,
doesn’t it?
POUNDER:
Absolutely, Mike. This is something that we see time and time again. We
see it a little bit more in the downturns of the business cycle, and a little
bit less when times are good. But it is always an issue and, certainly, one
that users of financial statements in particular are always very concerned
about.
QUINLAN:
That makes sense, Bruce, both historically and philosophically. But don’t
I recall, just a few years ago, there was a great deal when Deloitte
expressed its doubts about General Motors’ ability to continue as a going
concern?
POUNDER:
That’s right, Mike. Back in 2009, Deloitte issued, as auditors are
responsible for doing, an expression of substantial doubt about General
Motor’s ability to continue as a going concern.
In the United States, under Generally Accepted Auditing Standards, or
GAAS, it is indeed the auditor’s responsibility to make that observation –
and to include that in the auditor’s report – whenever they do have
substantial doubt about the entity’s ability to continue as a going concern.
QUINLAN:
That’s obviously a concept that means something to auditors, as it did to
Deloitte. But, in other countries, it’s up to the management of the entity
to make that assessment of going concern, isn’t it, Bruce?
POUNDER:
It is, Mike. And that is where we see a difference between U.S. GAAP,
the accounting standards that U.S. companies generally follow, and
international financial reporting standards or IFRS.
Under U.S. GAAP, there is no responsibility that the management of the
entity has to make any sort of conclusion or observation about the entity’s
ability to continue as a going concern.
Whereas, under IFRS, it is a very different story.
There is a very specific responsibility that management has to express
any concerns that they do have about the entity’s ability to continue as a
going concern.
There are elements of that standard that are in the accounting set of rules
under IFRS, which are complemented by a similar standard under the
auditing rules that are also used on a global basis. So, one could say that
there is a dual obligation of both the management of the entity, as well as
the auditor of that entity’s books, to make that conclusion or make that
observation about whether the entity is – or is not – able to continue as a
going concern.
QUINLAN:
Let’s make sure I understand you, Bruce, in the context of management’s
assessment of the entity’s ability to continue. What would management
be looking at? Would they be examining operating losses and working
capital deficiencies? Or would they be assessing the viability of a
company’s business model?
20
video transcript video transcript
POUNDER:
Mike, the answer is pretty much “all of the above.” And the reason is, if
you look at the standard in IFRS, what you are going to see is the
responsibility for management to take into consideration all available
information. That is a broad, open-ended way to look at what
management might possibly be thinking of, or taking into consideration,
when making that going concern assessment. There is no limit on it in
terms of what the management of the entity is required under the
accounting standard to consider.
We have a very different situation in the United States. Since we do not
have any sort of accounting standard in GAAP that puts the obligation on
management to do a going concern assessment, all we have to look at is
the auditing standard.
In the case of the auditing standard, the amount of information – and the
scope of information – that the auditor is required to consider is fairly
limited, well defined, and narrowly defined, such that the auditor only
has to take into consideration information that normally comes up in the
course of the audit of financial statements.
And that is typically not going to get into issues of strategy, business
models, and external factors.
These are not the sort of things then that auditors in the United States
will be basing their assessment on, because the auditing standards here
do not require that.
QUINLAN:
Interestingly, that’s what FASB proposed for U.S. GAAP: management
would assess whether there’s substantial doubt about an entity’s ability to
continue as a going concern. The idea was similar to “subsequent
events,” wasn’t it, Bruce? It would become part of the accounting
principles, but it would also remain a part of the auditing standards, too.
POUNDER:
Exactly. There have been discussions within the FASB – and between the
FASB and auditing standard setting organizations, like the AICPA and
the Public Company Accounting Oversight Board (PCAOB) – as to
where that sort of guidance belongs. Who should have the responsibility?
If the FASB decides to put that within GAAP, so that management has
the responsibility, there is certainly no assurance that the auditing
standards will then drop it as a responsibility of the auditor. I think a lot
of stakeholders, and a lot of users of financial statements, would go for
the belt-and-suspenders approach, and they would like to see
management have a responsibility for going concern as well as the
auditor.
QUINLAN:
From the way I understand it, Bruce, both GAAP and FASB refer to the
“foreseeable future” in terms of an entity’s ability to continue as a going
concern. To what extent is there also some controversy over the time
horizon?
POUNDER:
There has certainly been debate about that. It is a third key dimension of
any standard that is placed on either management or the auditor for
making a going concern assessment.
The first dimension of the issue is, of course: who is responsible for it?
The answer may be the auditor, management, or both, or neither.
The second dimension, which we have discussed, is: how much
information should whoever is responsible for making the going concern
assessment consider in making that assessment?
21
video transcript video transcript
And now, the third dimension is the time horizon.
How far should that responsible party be looking forward into the future
or when should that responsible party start? When should they stop
looking in terms of the timeframe?
Under existing GAAS in the United States, these are auditing standards
putting responsibility on the auditor, but limiting the amount of
information the auditor considers and also limiting that time horizon.
The auditor would not normally look past 12 months beyond the date of
the financial statements. That is what the standards prescribe. If you take
a look at IFRS, it is a more open-ended sort of time horizon.
If you look at what the FASB has proposed tentatively in the past, as they
were more actively working towards creating guidance for U.S. GAAP to
place a responsibility on management, we see many changes to the
FASB’s tentative thinking actually over that time.
The first idea was that the time horizon should be a minimum of 12
months under the accounting standards, versus the existing maximum of
12 months of auditing standards.
And then, there was some pushback from constituents, not surprisingly,
that opening the time horizon up indefinitely simply is not practical. And
it might even lead to inconsistencies then from entity-to-entity into
exactly how far forward the management or whoever would look. So,
FASB has struggled with trying to define that time horizon in an
appropriately broad, open-ended way, versus the practical considerations
that constituents have or that an auditor or a manager of an entity would
have, in saying, “Really, how far forward do I have to look?”
It needs to be practical, as well as broad and inclusive.
QUINLAN:
Under one system, it is clearly management’s job to explain a company’s
position to investors. But, under another way of looking at things, the
regulators and standard setters have little faith in executives’ ability to be
frank when the company is in danger of going under. From your
perspective, Bruce, is one view more realistic than the other?
POUNDER:
What we see, Mike, is the FASB “flip-flop” on this issue over the past
five years or so, going from the state – that we still have – of not having
this kind of guidance in GAAP, to tentatively deciding, “We need to get
this kind of guidance into GAAP.” And then, deciding, “No, we don’t.”
And then, very recently, in May 2012: “Yeah, we’re going to look at this
again because we’re back to thinking that we do need this guidance in
the GAAP.”
I think this back and forth over “do we” or “don’t we” reflects the
tension that there is between two really fundamental concepts. On the
one hand, you have a lot of folks who believe that it is management’s
responsibility to communicate the financial position and financial
performance of the entity. On the other hand, you have a lot of folks who
believe that management cannot be trusted to tell the truth about financial
position, financial performance and, particularly, about the outlook for
the entity’s ability to continue as a going concern.
Well, if you take that latter view, then you are pretty much in line with
the whole reason that we have external auditors in the first place. The
fact that, even though it may be management’s responsibility or not,
having an external, independent, objective source come in and assess the
video transcript video transcript
22
reliability of whatever management does – or does not – assert is really a
value-add for the capital markets.
It really helps users of financial statements attribute the appropriate level
of truthfulness to the assertions that management makes through the
financial statements.
If you believe, on one hand, that management really should be doing it.
And you believe, on the other hand that, even though they are
responsible for doing it, we cannot take them at their word. You are
going to have this back-and-forth as these two ideas get to battle it out in
the deliberations of the FASB and other organizations who are wrestling
essentially with the same kinds of issues.
So, it is really not too surprising, given the underlying conceptual
conflict at play.
QUINLAN:
Okay, so FASB has decided to go in another direction. Instead of going
concern, management is going to be asked to make ongoing disclosures
about risks and uncertainties. To what extent is that the same thing as an
assessment of going concern?
POUNDER:
I would really not consider them to be the same thing at all. When it
comes to risks and uncertainties, these would be important disclosures
for companies to make. But do they add up to an admission of a going
concern issue? I do not think so. In this particular case, if what a user of
the financial statements is concerned about is the entity’s ability to
continue as a going concern, that would be very difficult for the user to
tease out of very broad, very generic disclosures about risks and
uncertainty.
So, one of the key things about this project is whether disclosures about
risks and uncertainty would be sufficient to enable a user of financial
statements to reach a conclusion on his or her own about the entity’s
ability to continue as a going concern.
From my perspective, no, the risk and uncertainty disclosures would not
enable users of financial statements to make those conclusions.
QUINLAN:
According to FASB, they’d like to “provide principles-based guidance
on the adoption and application of the liquidation basis of accounting.”
In the past, Bruce, you’ve told me about cash-basis and accrual-basis.
Remind me: what do the standard setters mean when they refer to the
“liquidation” basis of accounting?
POUNDER:
It is actually something that is not really parallel to the cash basis or
income tax basis. It is its own whole other thing.
The liquidation basis of accounting stands in contrast to the going
concern basis of accounting. What most of us think of as accounting
under GAAP is really a going concern basis of accounting. You can do
that on an accrual basis.
If you do not use GAAP, you can still make that same going concern
assumption under a cash basis or income tax basis. But as soon as you
cross the line and say, “We have some concerns about this entity’s ability
to continue as a going concern,” then the issue of, “Maybe, we should be
accounting for this in a completely different way is going to come up.”
And that completely different way would really reflect what an entity
would expect to get from selling off its assets and satisfying its
liabilities, as opposed to continuing to use those assets and maintaining
those liabilities as a going concern would do.
video transcript video transcript
23
The basis for measuring assets and liabilities then can be extremely
different from what the basis for measuring those balance items would be
under a going concern assumption.
QUINLAN:
Okay, so, in FASB’s view – or in your view, Bruce – when is it
appropriate for companies to use the liquidation basis of accounting: when
an entity has actually filed for a liquidation or when it’s likely that outside
forces are going to make them consider liquidating?
POUNDER:
I would say, from my perspective, that the FASB – in its tentative
decisions to date – has pretty much come up with a practical line, and a
useful line, where they say that: if liquidation is imminent, then that
would be the trigger for switching from a going concern basis of
accounting to a liquidation basis of accounting.
What does it mean for liquidation to be imminent? One way that could
happen is, if the management of the entity has deliberately taken steps to
proceed with the liquidation. Or it could be an externally imposed
situation, where it becomes obvious that the creditors of the entity are
moving to force the liquidation of the entity.
It could be associated with a bankruptcy filing on the part of the entity,
although that – by itself, under our bankruptcy laws here in the United
States – is not necessarily going to result in a liquidation.
There could always be a situation where management secretly intends to
liquidate and fails to disclose that fact, but rather than trying to split hairs
or get inside of anyone’s mind,
I think there are certainly obvious, observable events that take place,
where one could objectively say, “Yes, a liquidation is imminent.” And
certainly, under those situations, I would concur with the FASB in saying
that is when you need to use the liquidation basis of accounting.
There are “triggers” or considerations that you might look at and say,
“Well, if this happens, then we should switch to the liquidation basis of
accounting.” That is actually what the FASB right now is trying to decide
and pin down.
When exactly should an entity switch from a going concern basis to a
liquidation basis?
QUINLAN:
As you just indicated, Bruce, FASB may – or may not – adopt new
disclosures about risks and uncertainties. But, even if they do, there will
still be a “gap” between the way “going concern” is treated under GAAP
and the way it is treated under IFRS, won’t there?
POUNDER:
There will. In the past, the FASB has tried very hard to minimize that gap.
Early on, when the FASB had made the decision that they were going to
try to incorporate going concern guidance, and put management square in
the “hot seat” with regard to responsibility for doing that, the FASB’s idea
was very much to look at the existing guidance under IFRS and model
FASB guidance after that.
At this point, because the FASB has backed off of that and now it seems
to be heading back in the direction of putting something into GAAP.
I do not know if they are quite as enthused about the idea of minimizing
any differences between whatever they come up with in GAAP and IFRS.
That remains to be seen, but the potential is certainly there. If we look at
other projects that the two boards have been working on which have had
video transcript video transcript
24
the ostensible purpose of converging the two sets of standards at the
standard level, convergence has not always been the outcome, at least not
perfect convergence. In some cases, the boards remain fairly far apart.
So, this is another project where we could get a very high degree of
convergence – or not.
QUINLAN:
On one hand, disclosures regarding risks and uncertainty would not – as
you indicated, Bruce – produce the equivalent of a going concern
opinion. On the other hand, there’s also some controversy associated
with those disclosures of risk and uncertainty, isn’t there?
POUNDER:
One of the things I would like to point out is that with the FASB’s recent
thinking about disclosures regarding risks and uncertainty that, in itself,
is a can of worms. We talked a little bit about how disclosures regarding
risks and uncertainty would not produce the equivalent of an “adverse
going concern” opinion in the same circumstances. One of the biggest
problems with disclosures about risks and uncertainty is a question of:
how do you measure risk? Even if you solve that: how do you
communicate in an effective way things like risks and uncertainty to
users of financial statements?
These are not issues to resolve for any standard setter anywhere. There
are challenges with how you measure risks. There are challenges with
how you communicate risks and uncertainty, so these are difficult areas.
What I know for certain, at least from my perspective, is you are never
going to get the same level of conclusiveness from broad risk and
uncertainty disclosures as you would get from a black-and-white adverse
going concern opinion expressed by an auditor or by a manager of the
entity.
QUINLAN:
I’ll ask you another “on the one hand” question, Bruce. On the one hand,
many investors and financial statement users are always interested in
getting increased disclosures from companies. On the other hand, even
FASB is aware that we might be in a situation of “disclosure overload,”
aren’t they?
POUNDER:
The inherent challenges of risk and uncertainty disclosures are simply
compounded by the fact that, as is widely acknowledged, we are in a
state of disclosure overload already. So, if risk and uncertainty
disclosures were really the only new thing or the only substantial thing
that was “on the table” in terms of standard setting, these might not be
very significant issues.
But in the context, and with the cumulative effect of all of the disclosures
that are required under GAAP and similarly under IFRS today, adding
more disclosures at this point in time is going to be looked at with an
even more jaundiced eye than it normally would be.
QUINLAN:
Since the subject of convergence with IFRS is on the table, Bruce, I
recall that – about a year or so ago – you told me about the word,
“condorsement,” and about the significance of 2012 for producing a
single set of high-quality global accounting standards. What’s going on?
And why is this issue no longer on the “front pages”?
POUNDER:
“Condorsement,” Mike, as we discussed in the past, was a term coined
by an SEC staff member to describe one possible way in which IFRS
could be incorporated into the U.S. financial reporting environment,
specifically for companies that are domestic SEC registrants – that is,
video transcript video transcript
25
companies that are based here in the United States that are subject to the
rules and regulations of the U.S. Securities and Exchange Commission.
Right now, the rules and regulations are very clear. Such domestic
registrants must use U.S. GAAP in preparing the financial statements that
they’re required to submit to the SEC.
Condorsement would be an approach where any changes to GAAP, as a
result of convergence with IRFS at the standard level, would come through
the FASB to be decided on an issue-by-issue basis: “whether this belongs
in U.S. GAAP or not.”
The interesting thing about the condorsement approach, which I said at the
time and I still say, is that it would be, from the SEC’s perspective, a
fundamental rejection of the use of IFRS by domestic SEC registrants.
It would require the status quo. That is, domestic registrants would be
required to continue using GAAP.
The composition of GAAP would change, but it would not be a wholesale
switch from U.S. GAAP to IFRS for domestic registrants.
QUINLAN:
Yes, on one hand, it does have a lot to do with the SEC and its agenda.
But, on the other hand, I saw a recent report by FASB and the IASB to
something called the Financial Stability Board. In that report, the two
standard setters confirmed what you’re saying, Bruce: mid-2013 is the
date they’re shooting for. Are the standard setters deliberately trying to
sound more like diplomats when they talk about “working expeditiously
towards a mutually satisfactory goal”?
POUNDER:
Yes, Mike, I think there is some very carefully chosen language there. This
is a case where we have seen the standard setters repeatedly set targets for
completing individual convergence projects in the past. Those targets have
not been met. The targets have been reset. The reset targets have not been
met. They have been reset again. The re-reset targets have not been met.
So, the fact that there is a new target out there, which I think is fair to say
is not a deadline. And these targets have not been considered by standard
setters in the past as absolute deadlines, so these targets keep getting reset.
They keep not getting met. And I think this is simply reflective of the
challenges that the boards are facing and the challenges of the processes
that they are using to try to resolve some pretty difficult issues. It has been
my opinion, and I have expressed this publicly in the past, that I do not
believe that the standard setting processes of the boards are as effective as
they could be at dealing with what are admittedly very difficult standard
setting challenges.
QUINLAN:
Well, you brought your crystal ball with you, Bruce. What does it say
about the future of global accounting standards?
POUNDER:
I think we all have to take a look at the future in a kind of a betting way.
There are a number of possibilities. How much are we willing to bet on
any one of those possibilities?
Maybe this is the time for us to hedge our bets and be more prepared for
different scenarios that could unfold, each of which has a significant
significance of unfolding.
If I had to pick one scenario that I think is more likely that the others, but
certainly not the only possibility and not the only one with a significant
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possibility, simply a scenario more likely than any other scenario to
happen,
I would say that the SEC will not require domestic registrants to switch
from using U.S. GAAP to using IFRS.
I do, however, think that there is a decent likelihood of the SEC allowing
domestic registrants their choice of using either IFRS or U.S. GAAP.
QUINLAN:
“This Week in Accounting’s” Bruce Pounder, thanks, once again, for
bringing us up-to-date.
POUNDER:
Thanks, Mike. I would be glad to come back.