What Management Should Be Looking for Regarding Going-Concern Issues During COVID-19– September 23, 2020

Going-concern issues are in the spotlight during the COVID-19 crisis as businesses continue to struggle. Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, took effect in 2017. The ASU says that each reporting period a company’s management — not their auditors — must evaluate whether or not the company can likely meet its financial obligations as they become due, and they must provide related footnote disclosures. The ASU impacts operating companies as well as investment companies and pooled investment vehicles, each with their own types of risk to address.

While some Private Company Council members recently asked the Financial Accounting Standards Board (FASB) to issue guidelines to bring awareness to the three-year-old rules, the bottom line is that your management team will need to evaluate and report on the viability of your operations. Here’s what to look for, and what to do.

Red Flags that May Reveal Your Company Has Going-Concern Issues

Management’s evaluation should be based on qualitative and quantitative information about relevant conditions and events that are known (or reasonably knowable) at the time of the evaluation. Examples of conditions that may raise a red flag include:

  • A reduction in sales due to store closures,
  • A shortage of products and supplies,
  • A decline in value of assets,
  • Significant changes in the liquidity of investment assets,
  • Work stoppages,
  • Increasing expense waivers and/or investment advisor receivables owed to the fund,
  • Loan defaults and debt restructuring, and
  • An uninsured or underinsured catastrophe.

What Should You Do Once You Identify Going-Concern Issues?

Many companies are experiencing one or more of the above conditions during the pandemic. If management concludes there’s substantial doubt about the entity’s ability to continue as a going concern, it must consider whether mitigation plans can be effectively implemented within the one-year look-forward period to alleviate the going-concern issues. Mitigation plans might include additional capital infusions from owners, access to funding through new bank loans or plans to cut costs through changes in the operations.

The forecasts and projections required by the rules are especially meaningful as companies navigate work burdens amid the pandemic. Though COVID-19-related work restrictions have been somewhat lifted in some areas, there’s still a level of uncertainty in the marketplace, which makes going-concern judgments even more critical.


The continuation of an entity as a going concern is presumed as the basis for reporting unless liquidation becomes imminent. Even if liquidation isn’t imminent, conditions and events may exist that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern. While today’s uncertain conditions create challenges when evaluating a company’s long-term viability, management still has the obligation to do so to the best of their ability and report any going-concern issues accordingly on their financial statements.

Contact Beth Reho at breho@cohencpa.com or a member of your service team to discuss this topic further.


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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.