The COVID-19 pandemic has had a far-reaching impact on the operations of many companies, regardless of size. While certain industries have been hit harder than others – hospitality, travel, and entertainment, for example – chances are your organization has experienced disruptions. From supply chain interruptions to restrictions on travel and personnel, organizations are facing many challenges. In light of those challenges, it’s critical that management brings new focus on Accounting Standards Update (ASU) 2014-15, “Presentation of Financial Statements, Going Concern (Subtopic 205 – 40)," (ASC 205 – 40).
ASU 2014-15 and management’s responsibility
ASU 2014-15 was implemented in 2017 to make management responsible for alerting financial statement users about uncertainties surrounding an entity’s ability to continue as a going concern. Before this standard went into effect, a company’s independent auditors were already required to assess going concern under the audit standards. While the auditor’s responsibility has not changed, management’s responsibility has increased.
Think of ASU 2014-15 as an early warning system. It is management’s responsibility to sound the alarm when “substantial doubt” is raised. Consider items such as forecasting shortfalls, decreased demand for products or services, the inability to access capital, impending debt maturity or other contractual obligations, and potential liquidity and working capital shortfalls, among other factors, when assessing whether substantial doubt about continuing as a going concern has been raised at your company.