Going Concern Concept

Going Concern Concept

Going concern assumption has fundamental importance for user of financial statement, because going concern assumption has great influence on economic decision making.

1.    Continue to Exist

Going Concern means that organization would continue to exist in future. In the context of going concern, future means at least 12 months from the balance sheet date.

2.    Management Assessment

Management shall make an assessment about entity ability to continue or exist as Going Concern. Management shall make such assessment after detailed analyses about the entity.

3.    Not Going Concern

Organization is not regarded as going concern, when either management is planning for shut down (liquidate) or cease trading or there are such circumstance, which would result in closure of organization automatically (for example high losses).

4.    Financial Statement

If going concern assumption is valid i.e. entity will continue to exist for foreseeable future (at least 12 month from balance sheet), then financial statement are prepared on normal bases i.e. historical cost.  While going concern assumption is not valid, then financial statement are prepared on suitable bases i.e. recoverable amount.

5.    Profitability & Going Concern

Profitability and Going concern has close link, and ordinarily a profitable organization is deemed to be a going concern. However, management may like to make a detail assessment about going concern. In detail assessment management would look into different aspect like sources of funding, liquidity, future cash flows, future profitability.

Financial Statements Comparability Concept

Financial Statements Recognition Concept

Measurement Concept
Going Concern Concept