This free, guided checker walks your finance team through the key decision points for ASC 205-40 Going Concern Evaluation. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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If liquidation is imminent, the going concern basis is no longer appropriate and the ASC 205-40 evaluation does not apply; the entity moves directly to the liquidation basis of accounting.
Liquidation basis of accounting applies under ASC 205-30.
Official guidance: FASB Accounting Standards Codification
Indicators include recurring operating losses, working capital deficiencies, negative operating cash flows, loan defaults or covenant breaches, denial of trade credit, the need to restructure debt or dispose of substantial assets, and loss of a key customer, supplier, franchise, or license. The assessment window runs one year from the issuance date, not the balance sheet date.
No substantial doubt is raised; no ASC 205-40 disclosures are required.
Official guidance: FASB Accounting Standards Codification
Typical plans include disposing of assets, borrowing money or restructuring debt, reducing or delaying expenditures, and raising equity capital. Only plans approved before the financial statements are issued can be considered in the evaluation.
Substantial doubt exists and is not alleviated; ASC 205-40-50-13 disclosures apply.
Official guidance: FASB Accounting Standards Codification
Implementation is probable generally only when the plan is within the entity's control and is feasible, considering factors such as approvals already obtained, the marketability of assets to be sold, and the status of financing commitments.
Substantial doubt exists and is not alleviated; ASC 205-40-50-13 disclosures apply.
Official guidance: FASB Accounting Standards Codification
Compare the expected magnitude and timing of the mitigating effect against the obligations coming due, for example whether committed financing proceeds cover the forecast cash shortfall for the full one year period after the issuance date.
Substantial doubt is alleviated by management's plans; ASC 205-40-50-12 disclosures apply. Substantial doubt exists and is not alleviated; ASC 205-40-50-13 disclosures apply.
Official guidance: FASB Accounting Standards Codification
Only plans approved before the issuance date and within the entity's control can be weighed in the evaluation. Test each plan against objective evidence such as executed contracts, board resolutions, and committed facilities rather than management intent. The common trap is crediting a refinancing or capital raise that has no counterparty commitment, which cannot be considered probable of implementation.
A plan that is only conceptual or contingent on events outside the entity's control is not probable of being effectively implemented under ASC 205-40-50-7; substantial doubt is not alleviated and ASC 205-40-50-13 disclosures apply.
Official guidance: FASB Accounting Standards Codification
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