When companies assess their ability to continue as a going concern, they'll be expected to look forward one year from the financial statement date under a new standard that is slated to take effect in 2016.

The Financial Accounting Standards Board is putting the finishing touches on its planned standard that will give management some new responsibilities to assess the company's ability to remain in business and to make some new disclosures if there's doubt about that ability. FASB decided at a recent meeting that management's assessment of an entity's ability to remain viable should be based on relevant conditions or events that are known or could reasonably be known as of the financial statement date.

FASB has wrestled mightily with how far into the future companies should be required to look in their assessment of whether it can remain in business, hearing plenty of conflicting views on where that time line should be set and how it should be defined. Ultimately, FASB settled on one year. Board members shared concerns about how private companies, whose deadlines for issuing financial statements are not as stringent as for public companies, would navigate the requirement with an exact time frame of one year. “I'm not interested in them making a substantial doubt call and having the game being played in the private community where you delay the issuance of financial statements until you are past the time period to say you're OK,” said FASB member Tom Linsmeier during a recent board meeting.

FASB has wrapped up its decision-making around revisions to the 2013 exposure draft of a going concern standard and is preparing the final standard for publication. The standard will not require the early-warning disclosures that were proposed in the 2014 draft standard, but instead will require disclosures when management deems there is substantial doubt about the entity's ability to stay afloat. The principle is similar to that followed by auditors under auditing standards, FASB says.

The standard will say substantial doubt would exist when management determines it is probable that an entity will not meet its obligations within one year from the date financial statements are issued. The assessment will be required at each annual and interim reporting period. Management will be able to take into consideration any plans it may be putting into play if it is considered probably that the plans will be implemented effectively and will provide the financial relief that's needed within the assessment period.

FASB expects to publish the final standard in the second quarter. It will take effect for all entities for reporting periods that begin after Dec. 15, 2015.

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