FASB Accounting Standards Codification Update 2011

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FASB Accounting Standards Codification Update 2011

  1. 1. A Global Reach with a Local Perspective University of North Alabama 19th Annual Decosimo Accounting Forum July 22, 2011 www.decosimo.comFASB ACCOUNTING STANDARDSCODIFICATION UPDATE 2011DEREK DANIEL, CPAAssurance Manager
  2. 2. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsWhy 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. 3. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsWho 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. 4. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsWhat 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. 5. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting 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. 6. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsHow 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. 7. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsWhen 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. 8. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsHow 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. 9. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsObjections 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. 10. FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test forReporting Units with Zero or Negative Carrying AmountsDetermining 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. 11. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeWhy 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. 12. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeWhy 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. 13. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeWho 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. 14. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeWhat 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. 15. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeWhat 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. 16. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeWhat 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. 17. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeHow 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. 18. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeWhen 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. 19. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeHow 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. 20. FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic220): Presentation of Comprehensive IncomeHow 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. 21. FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic820): Amendments to Achieve Common Fair Value Measurement andDisclosure 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. 22. FASB Accounting Standards Update 2011-02, Receivables (Topic 310): ACreditor’s Determination of Whether a Restructuring Is a Troubled DebtRestructuring 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. 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. 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. 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. 26. FASB Going Concern ProjectAUTHORITATIVE GUIDANCE: In 1981, the AICPA addressed the issue of going concern status through SAS No. 34, The Auditors Considerations When a Question Arises About an Entitys Continued Existence. In 1988, the AICPA issued SAS No. 59, The Auditors Consideration of an Entitys 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 entitys ability to continue as a going concern.
  27. 27. FASB Going Concern ProjectAUTHORITATIVE GUIDANCE (continued): The consideration of an entitys 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 entitys 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 entitys 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. 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 managements responsibility to evaluate a reporting entitys 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 managements assertion about the entitys ability to continue as a going concern.
  29. 29. FASB Going Concern ProjectLiquidation 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. 30. FASB Going Concern ProjectLiquidation 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. 31. FASB Going Concern ProjectTIME HORIZON AU §341 states that there is "a responsibility to evaluate whether there is substantial doubt about the entitys 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. 32. FASB Going Concern ProjectTIME 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. 33. FASB Going Concern Project AU §341 states that the auditors 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. 34. FASB Going Concern ProjectIn 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. 35. FASB Going Concern Project(continued from previous slide) The possible effects of those conditions and events Possible discontinuance of operations Managements evaluation of the significance of those conditions and events and any mitigating factors Managements 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. 36. FASB Going Concern ProjectThe consideration of an entitys 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 entitys ability to continue as a going concern for a reasonable period of time Identify and evaluate managements 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. 37. FASB Going Concern ProjectCOMPILATION AND REVIEW ENGAGEMENTS AR §80 and 90 provide guidance with respect to uncertainty about the entitys 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 entitys 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 managements conclusions including the adequacy of the related disclosures, if applicable. If you conclude that the entitys disclosures with respect to the entitys ability to continue as a going concern for a reasonable period of time are inadequate, a GAAP departure exists.
  38. 38. FASB Going Concern ProjectEFFECT ON REPORT WHEN DISCLOSURE IS ADEQUATE When uncertainties related to the clients 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. 39. FASB Going Concern ProjectREPORT 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. 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. 41. FASB Going Concern ProjectThe 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 Managements assessment of the significance of the factors and any mitigating circumstances Possible discontinuance of operations Managements 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. 42. FASB Going Concern ProjectOmission 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 companys 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. 43. FASB Going Concern ProjectOmission 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. 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. 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.

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