Insight

When you have substantial doubts about your nonprofit’s future

U.S. Generally Accepted Accounting Principles (GAAP) require not-for-profits to regularly evaluate whether there’s “substantial doubt” about their ability to continue as a going concern. This means that the organization won’t soon liquidate its assets and cease operations. What does your management team do if it determines substantial doubt?

2-step evaluation

Your nonprofit’s management must perform a going-concern evaluation each time annual or interim financial statements are issued. There are two steps:

  • Evaluate whether conditions and events exist that raise substantial doubt about your organization’s ability to continue as a going concern.
  • If so, consider whether plans intended to mitigate those conditions or events will alleviate the substantial doubt.

If you decide that there’s substantial doubt, you must make certain disclosures in your financial statement footnotes.

Relevant conditions

Substantial doubt exists when relevant conditions and events indicate that your organization likely won’t meet financial obligations that come due within one year after the date financial statements are issued. Relevant factors include:

  • Current financial conditions,
  • Obligations due or anticipated within one year,
  • Funds needed to maintain operations considering current financial condition, obligations and other expected cash flows, and
  • Other conditions and events that may adversely affect your organization.

Adverse conditions and events that raise substantial doubt might include negative cash flows, a loan default, denial of credit by suppliers or litigation. To mitigate such conditions, you might, for instance, decide to dispose of an asset, borrow money or reduce or delay expenditures.

But, you can consider the mitigating effect only if it’s likely that your plans will be effectively implemented. For example, do you have the necessary resources to carry out your plan? You also need to weigh the likelihood that your plan will be as effective as the situation requires. Can you actually alleviate the negative conditions within one year?

Don’t go it alone

Disclosures are required when substantial doubt exists, regardless of whether your plans will lessen the doubt. And if you’re doubting your nonprofit’s future, it’s essential that you work with a financial advisor. We can help you evaluate your organization’s condition and identify next steps. We can also help ensure that your financial statements include all required information about your status.

© 2019

Related Insights

The advantages of a living trust for your estate plan | cpa in baltimore county md | Weyrich, Cronin & Sorra

Estate & Wealth Transfer Planning

The advantages of a living trust for your estate plan

Do you believe you don’t need to worry about estate planning because of the current federal estate tax exemption ($13.99 million per individual…
DOs and DON’Ts to help protect your business expense deductions | business consulting services in hunt valley md | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

DOs and DON’Ts to help protect your business expense deductions

If you’re claiming deductions for business meals or vehicle expenses, expect the IRS to closely review them. In some cases, taxpayers have…
The One, Big, Beautiful Bill Act extends many business-friendly tax provisions | accountant in bel air md | Weyrich, Cronin & Sorra

Tax Prep, Planning & Strategy

The One, Big, Beautiful Bill Act extends many business-friendly tax provisions

The One, Big, Beautiful Bill Act (OBBBA) includes numerous provisions affecting the tax liability of U.S. businesses. For many businesses, the…

Connect with us

Use the form below to send us an email. WCS responds directly to all inquiries and general questions within 24 hours of posting.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.