Going Concern

Going concern definition

Going concern is an accounting assumption the business will continue its operations in the nearest future (usually 12 months period), will not be forced to cease it operations or in the other way cease business activities.

Such going concern assumption is a basic assumption with the condition that there is no evidence indicating that such assumption is incorrect.

In case there is evidence indicating that going concern principle is no longer applicable, this triggers accounting re-estimations:

whether impairment of assets is needed
whether long-term liabilities to be stated as short-term
whether provisions for potential losses or claims have to be accounted for
and so on

Going concern accounting does not involve such considerations.

Under going concern assumption accruals and deferrals are accounted for as usual, assets are not impaired, liabilities are classified under their due dates without a threat that creditors could claim them back earlier than due date and so on.

Going concern concept allows users of financial statement, which also include creditors, customers, employees and other parties believe that business will continue its operations, provide services or deliver goods, pay salaries, pay obligations when due.

So what is going concern?

It is an underlying assumption of business continuation, which impacts presentation of the accounting data in the financial statements of the business and gives comfort to the uses of the financial statements that business will be operating and fulfill its obligations towards creditors, employees, authorities, customers and other parties.

Going Concern

Second – accounting concept is going concern. Under this concept it is assumed that the business will continue its operations in the near future and this assumption is reflected in the financial statements.

While preparing financial statements we do not assume, that business will stop its operations. Therefore, all the assumptions and all the figures in the financial statements accounted for and recorded in their way with the assumption that the business will continue to operate and it will not be liquidated or it will not discontinue significant part of its operations in the nearest future.

If this assumption is not correct or if there are any doubts that the business will not be operating in the nearest future such information must be disclosed in the financial statements so the user software financial statements they must know that the business intends to discontinue its operations or a significant part of operations or a significant part of operations.