Going Concern is the place for accounting news, opinion, career advice, and analysis for accountants on the Internet. As a result, the importance of this principle is not comprehended correctly by the people. However, since the company has to make these decisions in a short time, the worth drops significantly. For anyone who has been or is planning to go into the accounting industry, the going concern principle is not new. Forms of writing: Different styles with their exclusive significance, Types of Branding: Learn more about branding and its significance. General purpose financial statements are prepared on a going concern basis, unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Going concern concept is also called continuing concern concept. Sign up now! Optional for statistical and marketing purposes. Learn how your comment data is processed. The going concern concept states that a business will continue its operations for the foreseeable future. Auditors even test for the company’s going concern ability to ensure the stability of the company. Thus the product that can be used in the business for more than a year or have future economic benefits is recognized as a fixed asset and not expense. Obtain sufficient appropriate audit evidence regarding, and to conclude on, the appropriateness of management’s use of the going concern basis of accounting, when relevant, in the preparation of the financial statements; Conclude, based on the audit evidence obtained, whether substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time … 252 para. Going concern principle is one of the accounting concept that we normally refer to an entity’s business operation for a foreseeable future. Without it, businesses would not be able to perform accrued or prepaid expenses.The going concern principle allows a business to defer some of their prepaid expenses to future accounting periods, rather than recognising them all at once. In essence, that means that there is no threat of liquidation for the foreseeable future, which is usually perceived as a period of time lasting for 12 months. The principle purports that every decision in a company is taken with the objective in mind of running the business rather than that of liquidating it. In sec. This site uses Akismet to reduce spam. Think about this: Considering its significance in the business industry, it is important for people pursuing to step in the accounting industry. In order to assume that the entity has no going concern problem, the … Pursuing my passion i.e. The going concern concept of accounting implies that the business entity will continue its operations in the future and will not liquidate or be forced to discontinue operations due to any reason. We’re a strategy, business & marketing resource. People in accountancy can verify when I say that the going concern principle is the opposite of bankruptcy. Press Esc to cancel. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Businesses assume that they will continue operating for an indefinite period of time, and that their assets will therefore be used in the business until they have fully depreciated. Now firstly, the board would like the accountants to turn up with a statistical report for the reasons. What is the Going Concern Principle? Going Concern Concept. Like, knowing it is one thing and understanding its significance is another. If a company is a going concern (and therefore liquidation is not relevant), reporting its long term assets at cost is sufficient and there is no need to report the The going concern principle assumes that a business is a going concern unless: They have cash flow problems They can't get loans from their bank when needed There is … Type above and press Enter to search. This depreciation calculation is based on the expected economic life of the asset, as opposed to its current market value. extract their utility by using them to convert raw material or provide intended services, 2. can plan activities and implement them, 3. pay its obligations at the agreed time. The concept of going concern is not just an audit-specific issue and there are a number of key issues accountants and clients need to be aware of around it, writes Steve Collings. 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