The Financial Accounting Standards Board is back on the path of adopting a requirement for management to assess a company's ability to remain in business as a going concern and disclose the outlook to investors.

After numerous fits and starts over the past several years, the board has come up with a new going concern model that it believes will be workable, pinning it to some carefully developed key terminology that is meant to address problems with prior attempts. The proposal in development would require management to assess the likelihood of the company falling short of its financial obligations as they come due for a “reasonable period of time” into the future, according to FASB's summary of its plans. The requirements would apply for all reporting periods, including interim reports.

The board would define a reasonable period of time as 12 months from the financial statement date, but that doesn't mean management can ignore what they know is looming just beyond the financial statement date. FASB says a reasonable period of time would be limited to something something practical, not to exceed 24 months.

The board is well aware of criticism is has heard in various iterations of the project over the years, especially establishing bright lines around when disclosures would be required and compelling management to make disclosures that would scare off investors perhaps unnecessarily, creating a self-fulfilling prophesy of failure. “I don't think these are bad disclosures, but I worry about operationalizing them,” said FASB member Marc Siegel. “I worry about the complexity, and I worry about the self-fulfilling propesy.” He said he fears the board will hear many of the same objections resurrected as it rolls out a new model.

Management would be expected to begin providing disclosures in its financial statements when it would be “more likely than not” that it won't be able to keep up with its bills “in the ordinary course of business,” FASB says. As it sizes up the need for disclosures, management can take into account the effects of any plans it has in place to keep up with obligations, but it will trip a disclosure requirement when that involves taking measures that are “outside the ordinary course of business.”

FASB is further thinking that management would be required to say there is “substantial doubt” about the company's ability to continue as a going concern when it deems the likelihood of the company's inability to meet obligations in a reasonable period of time as “probable.” Management would consider the effect of all of its plans, inside and outside the normal course of business, in deciding when it is time to make such a disclosure.

The board plans to meet further to determine the disclosure requirements, to determine how it would apply to nonpublic companies, and to discuss additional guidance, effective date, and transition.