PCAOB AS 2415 and AICPA AU-C Section 570 require an explanatory paragraph in the auditor’s report when the auditor concludes that “substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time remains.” In addition, ASC 205-40 requires an entity’s management to evaluate whether conditions or events raise substantial doubt about the entity’s ability to continue as a going concern and, if so, “whether its plans that are intended to mitigate those [relevant] conditions and events, when implemented, will alleviate substantial doubt.” In circumstances in which management has identified conditions or events that raise substantial doubt that has not been alleviated by its plans and an explanatory paragraph that has been added to the auditor’s report, a valuation allowance would generally be recorded for all DTAs whose realization is not assured by either offsetting existing taxable temporary differences or carryback to open tax years. However, in very limited circumstances, the immediate cause of the going-concern uncertainty may not be directly related to the entity’s operations, in which case a full valuation allowance may not be required.
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