On February 22, 2017, the AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) No. 132, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern.
SAS No. 132 applies to all audits of a complete set of financial statements, including financial statements prepared in accordance with a general purpose or a special purpose framework. SAS No. 132 supersedes SAS No. 126 of the same title and is effective for audits of financial statements for periods ending on or after Dec. 15, 2017, and for reviews of interim financial information for interim periods beginning after fiscal years ending on or after Dec. 15, 2017. Therefore, it will become testable on the CPA exam January 1, 2018.
SAS 132.10 states, “The objectives of the auditor are as follows:
- To obtain sufficient appropriate audit evidence regarding, and to conclude on, the appropriateness of management’s use of the going concern basis of accounting, when relevant, in the preparation of the financial statements;
- To conclude, based on the audit evidence obtained, whether substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time exists;
- To evaluate the possible financial statement effects, including the adequacy of disclosure regarding the entity’s ability to continue as a going concern for a reasonable period of time;
- To report in accordance with this SAS.”
When management’s plans include financial support by third parties, or the entity’s owner-manager, the auditor is now required to obtain sufficient appropriate audit evidence about the intent and ability of those parties to provide the necessary financial support, provided that such evidence is necessary in order to support management’s assertions.
Period beyond management’s assessment
SAS No. 132 requires the auditor to ask management about conditions or events beyond the period of management’s evaluation that may have an effect on the entity’s ability to continue as a going concern.
Interim financial information
The ASB also amended AU-C Section 930, Interim Financial Information; there is now a new requirement for the auditor to include an emphasis-of-matter paragraph in the review report when certain conditions or events exist related to substantial doubt about an entity’s ability to continue as a going concern.
Special purpose framework financial statements
SAS No. 132 states that the issues of the appropriateness of management’s use of the going concern basis of accounting and whether substantial doubt exists are to be considered separately. Accordingly, the auditor is not required to obtain sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting when the going concern issue is not relevant. The auditor is required to conclude whether substantial doubt exists and to evaluate the possible financial statement effects.
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Susan J. Cox, M.Acc., CPA is a Senior Technical Editor for Surgent CPA Review. Susan received her graduate and undergraduate degrees from Florida State University. Prior to joining Surgent, Susan worked as a technical editor for Thomson Reuters, an accounting instructor for the University of South Florida, a senior internal auditor for GTE, and an experienced senior auditor for Arthur Andersen & Co.