PCAOB Advises Auditors to Stay Alert on Going Concern

Auditors will be expected to follow existing standard with respect to the going concern determination, even after companies adopt a new accounting standard requiring management to take the first step in assessing a company’s ability to remain viable.

The Public Company Accounting Oversight Board has issued a fresh practice alert to remind auditors that the PCAOB has not changed its standards requiring auditors to perform their own independent assessment of a company’s ability to survive whatever financial difficulties it may be facing in the coming year. "With the recent changes to U.S. GAAP, the staff is issuing this alert to make clear that current auditing standards remain in effect," said PCAOB Chief Auditor Martin F. Baumann in a statement. “An auditor's responsibility to evaluate a company's ability to continue as a going concern is an important part of the audit.”

The Financial Accounting Standards Board adopted Accounting Standards Update No. 2014-15 to require management to determine whether investors should be warned that the company might not be able to keep up with its financial obligations in the 12 months ahead. Historically, the duty has fallen to auditors under auditing standards, but investors and FASB believed it more appropriate for management to take the first step in making such a disclosure.

With the new accounting standard and no change in auditing standards, that means auditors will be required to audit management’s assertion, plus make an assessment and assertion of their own, the PCAOB says. If management concludes, for example, that there’s no need for a going concern disclosure under accounting standards, that doesn’t mean auditors should assume the same. “Auditors should make a separate evaluation of the need for disclosure in the auditor’s report in accordance with the requirements of AU Section 341,” which is the applicable auditing standard, the PCAOB says in a statement.

FASB’s standard for GAAP takes effect with the beginning of the 2017 reporting year for calendar-year companies. The PCAOB has a project on its agenda to consider whether the auditing standards should be revised in light of the new accounting standard.