FASB Accounting Standards Update (ASU) 2014-15 changes the disclosure requirements of the going concern concept for organizations with annual periods ending after December 15, 2016. This new standard makes organizational management responsible for assessing going concern internally. Previously, the U.S. Generally Accepted Accounting Principles’ (GAAP) did not provide set guidance on these requirements and going concern assessments were only required as an audit procedure. This updated standard changes the assessment period; organizations have one year after the financial statements are available or issued, rather than one year after the balance sheet date.
The new FASB update defines a going concern issue as “substantial doubt that the entity will be able to meet its obligations as they become due within one year after the date that the financial statements are issued.” An organization that is highly capitalized and has good credit may need to recognize a going concern issue if they plan on deferring a significant amount of payments. They may elect to disclose that this issue will be sufficiently alleviated by the deferral, but they are still required to disclose that a going concern issue existed.
Management is required to assess the conditions that may make financial statement users doubt the entity’s ability to continue as a going concern. They must also assess whether there are effective plans in place to alleviate these conditions. If it is determined that the substantial doubt is able to be mitigated through management plans, the financial statements must disclose the conditions raising that doubt. Additionally, management must evaluate the conditions and have plans in place to alleviate the doubt. If it is unable to be mitigated, the statements should disclose that there is substantial doubt about the entity’s ability to continue as a going concern, conditions raising doubt, management’s evaluation of the conditions, and their plans to mitigate the doubt.
This new update aims to make the timing and substance of going concern footnotes more consistent and clear. Previously, there was possible confusion around whether going concern issues existed and could be mitigated. Users could jump to the conclusion that the company would go out of business even if all doubt could be sufficiently mitigated. The guidance now in effect aims to avoid these misunderstandings by providing more cohesive instructions for the proper evaluation and disclosure of going concern issues.
Schools are the perfect places to find new opportunities and challenges at every turn. Furthermore, the next challenge your institution faces may not be in the classroom. The front and back office, which includes the accounting department also require effective internal controls. Here are some best practices that should mitigate or prevent issues from happening in your educational institution.
Segregation of duties
Typically, schools have small administrative groups, making the segregation of duties quite difficult. Even so, it is important to separate the activities of authorization, payment, and recording among staff members. For example, try alternating tasks between staff members, and using them as checks for each other.
With so many people coming in and out of schools, the risk of theft or damage to assets increases. Using some simple, physical internal controls can prevent damage or theft. Lock everything! Making sure your school’s doors are locked at all times will protect equipment. Petty cash and checks should be away in a safe. If feasible, electronic access cards and cameras are also good ways to increase security especially for high-value assets.
Today’s students are technologically savvy. Therefore, limiting their access to school computers is one control to implement. Furthermore, make sure school financial and administrative data are password protected with complex passwords that are changed regularly. The ability to add and remove programs should be exclusive to administrators. Access to internal information, whether it’s HR, Finance, or other administrative data, should also be limited to those who need it.
Schools benefit from proper accounting policies. Proper accounting policies can ensure all transactions are authorized, properly recorded, and not omitted from the records. School policies should include keeping a chart of accounts, proper approval steps, and sequential numbering. Map out the accounting internal controls for staff to follow.
Ethics training for all employees is one of the most important activities in internal controls. It will facilitate an ethical control environment across the organization. This mindset helps prevent and detect financial fraud and other unethical behavior. A code of ethics section in the employee handbook can also help let staff know what the expectations are.
For more information on internal controls in schools or Aronson, please contact Dan Kelley at firstname.lastname@example.org.