FAR, Financial Accounting and Reporting
Sources for Risks, Uncertainties and Going Concern
Last reviewed
The standards and authorities behind PocketCPA's FAR lessons on Risks, Uncertainties and Going Concern. The topic rests on ASC 275.
About this topic
Financial statements are written on an assumption that rarely gets said out loud: the entity will still be operating next year. Inventory is carried at cost because it will be sold in the ordinary course, and long-lived assets are depreciated over lives that run for years. A building is not written down to what it would fetch in a fire sale.
Two Topics deal with what happens when that assumption, or the numbers built on it, are less secure than the statements make them look. ASC 205-40 asks whether the entity can meet its obligations as they come due over the next year, and what the notes must say when the answer is in doubt. ASC 275 asks a broader question about every set of statements: which of the reported numbers, and which of the entity's dependencies, could change sharply and soon.
What the lessons cover
- The going concern basis, and when it ends (ASC 205-30)
- The evaluation: who performs it, when, and over what window (ASC 205-40-50-1)
- Step one: is substantial doubt raised? (ASC 205-40-50)
- Step two: do management's plans alleviate it? (ASC 205-40-50-6 to 50-10)
- Disclosure: alleviated versus not alleviated (ASC 205-40-50-12 to 50-14)
- Risks and uncertainties: operations and significant estimates
- Concentrations: current vulnerability (ASC 275-10-50-16)
Authoritative references
- The liquidation basis and when liquidation is imminent, ASC 205-30-25.
- Substantial doubt about an entity's ability to continue as a going concern, ASC Master Glossary.
- The evaluation: annual and interim periods, the one-year window from issuance, ASC 205-40-50-1.
- Information management considers, ASC 205-40-50-5.
- Management's plans: the evaluation, the two probabilities, approval before issuance, magnitude and timing, ASC 205-40-50-6, 50-7, 50-8 and 50-10.
- Disclosure when doubt is alleviated, when it is not, and in later periods, ASC 205-40-50-12, 50-13 and 50-14.
- Examples of adverse conditions and of mitigating plans, ASC 205-40-55-2 and 55-3.
- Near term, severe impact and reasonably possible, ASC 275-10-20.
- The four disclosure areas and nature of operations, ASC 275-10-50.
- Use of estimates, ASC 275-10-50-4.
- Certain significant estimates: the criteria, the content, the common areas, ASC 275-10-50-8, 50-9 and 50-15.
- Concentrations: the criteria, the types and presumptions, labor and foreign operations, ASC 275-10-50-16, 50-18 and 50-20.
- The auditor's evaluation, AU-C 570, taught in the AUD section.
How PocketCPA uses these sources
Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.