If a company is experiencing financial difficulty that raises substantial doubt about its ability to continue as a going concern, auditing standards require the auditor to determine whether going-concern disclosures are adequate.
Due to the fact that this ASU now mandates management analysis, which will be subject to auditing procedures, it represents a substantial change in practice for organizations that are having financial difficulties.
The ASU defines substantial doubt using a likely level. The word probable, which means "likely to occur," is employed consistently with its use in contingencies.
When management determines that no substantial uncertainty is generated after evaluating the circumstances and occurrences, but before taking into account any potential mitigating impacts of management's unfulfilled plans, no disclosures are necessary.
After determining that there is considerable uncertainty about the entity's capacity to continue as a going concern, an auditor is obligated by the auditing standard to assess the sufficiency of going concern disclosures.
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