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'Going Concern' Change Raises Concerns

FASB aims to shift call on entity's viability from auditors to corporate managers.

By Dave Lindorff | Updated on March 17, 2009

When the Financial Accounting Standards Board (FASB) began reviewing the handling of the “going concern” declaration in FAS 157 a year or so ago, who knew what a big issue it would become for even mainstays of the corporate world. Today, Bear Stearns and Lehman Brothers are history, while the likes of American International Group (AIG) and General Motors are looking shaky.

Now the FASB is preparing to change the rules under which an auditor can declare a company to be a “going concern.” Currently, auditors need only look out 365 days. If during that period, no event appears likely to threaten an enterprise’s survival– even if there might be a known occurrence like a debt maturing one month later, which might be difficult to refinance–the company can be declared a “going concern.”

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