Note X – Going Concern

Note X – Going Concern

Use the following disclosure in circumstances where substantial doubt is alleviated by management’s plans:

(Describe conditions or events giving rise to a substantial doubt about the government’s ability to continue as a going concern for a reasonable period of time) [1]

(Describe management’s plan) [2] These planned actions are expected to enable the government to continue operating and meeting its obligations as they come due.

Use the following disclosure in circumstances where substantial doubt is not alleviated by management’s plans:

The financial statements have been prepared on a going concern basis, which assumes the (city/county/district) will be able to realize its assets and settle its liabilities in the normal course of business for the foreseeable future. (Describe conditions or events giving rise to a substantial doubt about the government’s ability to continue as a going concern for a reasonable period of time) [1]

These conditions raise substantial doubt about the (city/county/district)’s ability to continue operating as it has in the past. (Describe management’s plan) [2] The ability to continue as a going concern is dependent upon (describe conditions needed, such as a favorable outcome to litigation, ability to secure permanent financing, continuing to receive outside assistance with deficits, reduction of certain expenditures or increase in certain revenues, success of management’s plans as described above, etc.)

Instructions to preparer:

Financial statements are prepared on a going concern basis, which is, in the absence of significant information to the contrary, the continuation of a legally separate governmental entity. Generally, significant information to the contrary would consist of a government’s inability to continue to realize its assets and settle its liabilities in the normal course of business for the foreseeable future, sale of substantial assets to meet obligations, restructuring debt, submitting to government oversight or fiscal assistance to operate, or similar actions.

Governments are required to evaluate whether there is a substantial doubt about the district’s ability to continue as a going concern for a reasonable period of time (which is generally considered to be 15 months beyond the date of the financial statements) without needing to default on obligations or take emergency actions outside the normal course of business. If no substantial doubt exists, then no disclosure is needed. However, if conditions or events exist that raise a substantial doubt, the note disclosure is required.

The contents of the note disclosure will be different, depending on whether the substantial doubt is alleviated by management’s plans or not.

[1] The description of conditions or events giving rise to a substantial doubt should include disclosure of the following, as appropriate:

• Relevant conditions and events

• The possible effects of such conditions and events, including possible discontinuation or severe reduction of operations, if applicable

• Government officials' evaluation of the significance of those conditions and events and any mitigating factors,

• Government officials' plans, including relevant prospective financial information or subsequent events

[2] The description of the government’s plans should include disclosure of the following information, as appropriate:

• Relevant actions taken or planned to address the conditions or events.

• The estimated time frame for planned actions, if known.

• Whether the planned action has been approved by the governing body or is just being considered.

• Information about possible direct or indirect effects of disposal on operations or levels of service, if applicable.

• Relevant prospective financial information or subsequent events, if applicable.

• Information about the recoverability or classification of recorded assets or the amounts or classification of liabilities, if applicable.

The following include examples of plans that management may implement to mitigate conditions or events, along with specific considerations regarding information to disclose about those plans. Note - examples are not an all-inclusive list.

• Discontinuing or outsourcing certain activities or operations. Consider disclosing estimated transition costs and future cost savings (if known) and any restrictions, whether services are expected to be assumed by other governments, and any encumbrances or uncertainties related to the discontinuance, such as the need to negotiate with service providers or contractors.

•  Selling assets - Consider disclosing any conditions, restrictions, encumbrances or uncertainties related to the sale or marketability of the asset.

•  Borrowing money or restructuring debt - Consider disclosing availability and terms of planned financing and any expected need for collateral or third-party guarantees.

•  Reducing or delaying expenditures. Consider disclosing whether reductions are planned to be temporary or permanent and any restrictions, encumbrances or uncertainties related to the reduction, such as the need to negotiate with unions, vendors or other parties.

• Raising revenues. Consider disclosing any conditions or uncertainties such as the outcome of a vote or grant application.