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Debate About Going Concern

U.S. accounting regulator considers requiring that management be responsible for warning the company is at risk of failing, rather than the outside auditor.

By Dave Lindorff | Updated on June 18, 2012

The Financial Accounting Standards Board (FASB), mindful of the large number of business failures that occurred in the wake of the financial crisis, has decided to revisit a controversial decision regarding the reporting of any “substantial doubts” about a public company’s ability to continue as a “going concern.” Traditionally, outside auditors have been responsible for sounding the alarm if there was doubt a company could continue to operate. But in 2008, FASB proposed requiring management to assess and report on that risk.

In comment letters at the time, the idea was criticized by two different contingents. Some critics opposed putting the responsibility on managers, and others warned that auditors would find it difficult to require management to make such an assessment if the company’s own accountants had not already raised the issue. In the end, FASB opted to leave the responsibility with the auditor.

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