Going concern

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A going concern is a business that functions without the intention or threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.

1 Use in Accounting
2 Use in Risk Management
3 References
4 See also
- 4.1 External links

[edit] Use in Accounting

In accounting, "going concern" refers to a company's ability to continue functioning as a business entity. It is the responsibility of the directors to assess whether the going concern assumption is appropriate when preparing the financial statements. A company is required to disclose in the notes to the financial statements whether there are any factors that may put the company's status as a going concern in doubt.

The company's auditor must consider whether the use of the going concern assumption is appropriate, and whether there are material uncertainties about the entity's ability to continue to operate as a going concern that need to be disclosed in the financial statements.^[1]

Financial statements are prepared on the assumption that the entity is a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations. Different bases of measurement may be appropriate when the entity is not expected to continue in operation for the foreseeable future.^[2] Where a company is not a going concern, the break-up basis is used where all assets and liabilities are stated at Net Realizable Value.

[edit] Use in Risk Management

If a public company reports that its auditors have doubts about its ability to continue as a going concern, investors are likely to take that as a sign of increased risk. Some fund managers may be required to sell the stock to maintain an appropriate level of risk in their portfolios. A negative judgment may also result in the breach of bank loan covenants.