Going Concern Contingencies

Uncertainty about a ministry’s ability to continue as a “going concern” relates to its inability to continue to meet its obligations as they become due without substantial disposition of assets outside the ordinary course of its activities, restructuring of debt, externally forced revision of its activities, or similar actions. Thus, a ministry’s status as a going concern is more than an evaluation of whether recorded assets and liabilities are recoverable and properly classified.

If there is substantial doubt about a ministry’s ability to continue as a going concern for a reasonable period of time not to exceed one year beyond the statement of financial position date, the following information should be disclosed:

  • pertinent conditions and events giving rise to the assessment of substantial doubt about the ministry’s ability to continue as a going concern for a period of time not to exceed one year from the statement of financial position date;
  • possible effects of the conditions in advance;
  • management’s evaluation of the significance of those conditions and events and any mitigating factors;
  • possible discontinuance of activities;
  • management’s plans, including relevant prospective financial information; and
  • information about the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.

If the substantial doubt about the ministry's ability to continue as a going concern is alleviated, the following information should be disclosed:

  • conditions and events that initially caused the substantial doubt;
  • possible effects of the conditions and events; and
  • mitigating factors, including management’s plans.

The following conditions and events may indicate a substantial doubt about an organization’s ability to continue as a going concern:

  • insufficient unrestricted revenues to provide supporting services to activities funded by restricted contributions;
  • a high ratio of fundraising expenses to contributions received, or a low ratio of program expenses to total expenses;
  • insufficient funds to meet donor restrictions;
  • activities that can jeopardize the ministry's tax-exempt status;
  • concern expressed by governmental authorities regarding alleged violations of state laws governing a ministry's maintenance or preservation of certain assets, such as collection items;
  • a loss of key board members, volunteers, or principal donors; and
  • a difficulty fulfilling goals or reduced staff.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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