Washington, DC, Sept. 22, 2014
The Public Company Accounting Oversight Board today issued a Staff Audit Practice Alert to remind auditors to continue to follow existing PCAOB standards when considering a company's ability to continue as a going concern.
This alert is being issued in light of recent changes to U.S. generally accepted accounting principles, or U.S. GAAP, about disclosure of uncertainties about a company's ability to continue as a going concern.
"An auditor's responsibility to evaluate a company's ability to continue as a going concern is an important part of the audit. 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 and Director of Professional Standards Martin F. Baumann.
The alert says that auditors should look to the applicable financial reporting framework—whether U.S. GAAP or International Financial Reporting Standards—to assess management's going concern evaluation and the related financial statement disclosures.
The alert also makes clear that auditors should continue to look to the existing requirements of AU sec. 341 when evaluating whether the auditor's report requires an explanatory paragraph disclosing the auditor's substantial doubt about a company's ability to continue as a going concern. It also notes that the auditor's evaluation is qualitative based on the relevant events and conditions and other considerations set forth in AU sec. 341.
A determination that no disclosure is required under U.S. GAAP or IFRS, as applicable, is not conclusive as to whether an explanatory paragraph is required under AU sec. 341. Auditors should make a separate evaluation of the need for disclosure in the auditor's report in accordance with the requirements of AU sec. 341.
The PCAOB's standard-setting agenda includes a project to consider potential revisions to the going concern standard, AU sec. 341.