On August 27, 2014, FASB issued Accounting Standards Update No. 2014-15 (ASU) that requires both reporting companies and non-reporting entities that prepare US GAAP financial statements to evaluate uncertainties about their ability to continue as a going concern. The ASU requires companies to make related financial statement footnote disclosures under certain circumstances.

Under US GAAP, financial statements are prepared with the background assumption that the reporting entity will continue to operate for the foreseeable future, as opposed to stopping its operations and liquidating. This is important because if an entity is going to be liquidating imminently, its financial statements should be prepared on a different basis known as the liquidation basis. US auditing standards require auditors to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period, and under some circumstances assess the adequacy of disclosure about any going concern uncertainty. Previously, however, US GAAP included no guidance on:

According to FASB, this has led to a diversity of interpretations of when and how going concern uncertainties should be disclosed. The ASU is intended to reduce this diversity in the timing and content of these disclosures.

Under the ASU, both SEC reporting companies and non-reporting entities must evaluate going concern uncertainties at each annual and interim reporting period. An entity would be required to provide financial statement footnote disclosure when conditions or events, considered in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). Management should base its evaluation on relevant conditions and events that are known and reasonably knowable at the date the financial statements are issued (or at the date that the financial statements are available to be issued, when applicable). Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is "probable" (as that term is used in Topic 450, Contingencies) that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued).

When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, it should consider whether its plans that are intended to mitigate those conditions or events will alleviate the substantial doubt. The mitigating effect should be considered only to the extent that:

If the substantial doubt is alleviated as a result of consideration of management's plans, the entity should disclose information that enables users of the financial statements to understand (or refer to similar information disclosed elsewhere in the footnotes):

If substantial doubt is not alleviated after consideration of management's plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). The entity should also disclose information that enables the users of the financial statements to understand:

A flowchart illustrating the considerations and disclosure requirements under the ASU appears on page 12 of the ASU.

The ASU takes effect for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Companies may elect to comply with the ASU earlier.

For more information on the ASU, see FASB's news release. For a discussion of auditing standards relating to the going concern presumption, see Practice Note, Auditing: An Overview.