During ordinary times, most governments don’t think about the possibility of closing their doors, otherwise known as a going concern. However, in these uncertain times, evaluating plans and actions regarding the possibility of becoming a going concern or having to address considerations related to going concern is more relevant.
The accounting definition of a going concern is “a business that is assumed will meet its financial obligations when they fall due. It functions without the threat of liquidation for the foreseeable future, which is usually regarded as at least the next 12 months or the specified accounting period.”
GASB Statement No. 56, “Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards” (paragraphs 16-19), contains certain indicators that there may be substantial doubt about a government’s ability to continue operating as a going concern. Such indicators include:
Governments should continue to monitor their business operations, including the availability of funding to meet outstanding debt obligations when and as they are due, revise work processes during physical location closures and keep current on legislative initiatives and mandates that could impact their provision of services and/or availability of funding.
In all cases, but especially during these uncertain times with rapid changes in operations, management should review their business plans and operational needs on a frequent basis. Takeaways should be documented, particularly if they include impacts on a potential going concern. Considerations should include:
In situations where there is a going concern risk, the above elements should be included within the notes of the entity’s financial statements and management’s discussion and analysis.
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