The Financial Accounting Standards Board is expected soon to issue a new proposal for new disclosure requirements regarding when a company's ability to remain in business as a going concern is in jeopardy.

The board indicated in February it expected to issue a new exposure draft in late March or early April. FASB first issued a proposal in 2008 but made a series of course corrections on how to get such warnings out to investors. Most recently, the board has decided to adopt a new financial reporting model for management's assessment and disclosures, requiring management to consider each reporting period the likelihood that an entity might be unable to meet its obligations as they come due for a reasonable period of time into the future.

The proposal is expected to advise management that they must start providing disclosures in financial statements when existing events or conditions indicate they are nearing a point where it is more likely than not that they may not meet their obligations in the ordinary course of business. The proposal is expected to say management can consider whatever plans they have to head off such trouble in deciding if they must make such disclosures, but only if those actions are within the normal course of business.

FASB recently gave companies some new guidance on what happens further down the line when it is time to switch the basis of accounting from going concern to liquidation, signaling to investors that the company is going out of business and liquidating its assets. FASB adopted Accounting Standards Update No. 2013-07 to map out some needed guidance on when it is appropriate to switch from a going concern basis to a liquidation basis of accounting, or preparing financial statements in a way that helps investors understand how much it expects to remain after its assets are sold and its debts are settled.

The new guidance explains how to apply the liquidation basis, provides principles for how to recognize and measure assets and liabilities under liquidation basis, and includes other requirements for financial statements prepared under liquidation basis. In a statement, FASB Chairman Leslie Seidman says stakeholders have have asked for guidance on when and how to prepare financial statements under the liquidation basis. “This standard addresses their concerns and reduces the diversity in practice that has resulted in the reporting of these activities,” she said.

In the new accounting rule, FASB says companies should switch to liquidation basis when liquidation is “imminent,” meaning the chances are remote that the company will return to business. It also means a plan for liquidation has been approved by those with the authority to do so and its unlikely to be blocked by other parties, and it includes when a plan for liquidation is being forced on the company, such as through involuntary bankruptcy.

When reporting under the liquidation basis, the new standard requires financial statement preparers to provide information about a company's resources and obligations in liquidation, such as assets measured at the amount of cash they are expected to fetch in liquidation and liabilities according to other accounting guidance without assuming they will be released from those debts. Companies also need to explain any costs they expect to incur in disposing of assets and any income they expect to earn during liquidation.

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