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Will FASB's Going Concern Warning Rule Work in the Real World?

Tammy Whitehouse | October 8, 2013

After years of batting around ideas for an early warning to investors that a company is in trouble, consensus is growing that management should be responsible for raising a red flag. That consensus crumbles, however, when the conversation turns to exactly how to produce a rule that can work in practice.

The Financial Accounting Standards Board will wrestle with those issues in the coming months as it sifts through feedback to its proposal to require companies to issue new disclosures about whether there's a risk that a company will not be able to continue operating as a going concern. FASB published its proposal in June and accepted written comments through late September. The majority of those who submitted comments agree that, in theory, if someone is going to be in charge of warning investors that the company is in trouble, it should be management.

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