Although auditing standards for private companies now reflect updated accounting rules around the going concern assessment, public companies will be getting their new standards no time soon.

The Auditing Standards Board at the American Institute of Certified Public Accountants has issued a new auditing standard around the going concern analysis and determination that will be observed in private company audits beginning in 2018. The updated standard is responsive to an accounting standard adopted in 2014 that requires management to take the first step in advising investors if there is reason to doubt the entity can continue as a going concern.

When the Financial Accounting Standards Board adopted the standard in 2014, it put a long lead time on the effective date, in part to give auditing regulators an opportunity to consider if changes to their standard were warranted. The accounting standard took effect in 2016, but the Public Company Accounting Oversight Board so far has taken no action publicly to make any changes.

The PCAOB has kicked around the idea of updating its standard, listing it in its December 2016 standard-setting agenda as an open project. However, the board has not issued any public consultation documents, such as a concept release or an exposure draft proposing a new standard. The board’s latest agenda says the next steps on the going concern issue are under consideration. A PCAOB spokesman had no further information on the status.

Auditors have long operated under a requirement to consider whether there’s a reason to doubt an entity’s ability to remain in business, but FASB took up a rule in accounting standards to require management to make that determination before auditors. Without a change in auditing standards, however, management and auditors are making separate determinations under different guidance, leading to potential differences in the outcomes.

The PCAOB issued an alert to auditors after FASB issued its accounting rule to remind auditors that their responsibilities to arrive at a determination of their own had not changed. Now, in essence, auditors must audit management’s determination based on accounting standards, then arrive at their own determination based on auditing standards, which are not entirely aligned with the accounting guidance.

Topics