A going concern describes a business that functions without the intention or threat of liquidation for the foreseeable future.

Use in Accounting

In accounting, "going concern" refers to a company's ability to continue functioning as a business entity. Accountants and auditors may be required to evaluate and disclose whether a company is no longer a going concern, or is at risk of ceasing to be one.

Such a determination may require a different method of preparation of financial statements. If a company is not a going concern, then the company's value is limited to the resale or salvage value of its assets. If a company is a going concern, the company may have additional value due to the income-earning potential of its ongoing business.

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.

External links

• Glossary of Accounting Terms page ("going concern assumption").
• Understanding the fundamental accounting concepts including Going concern concept

Generally Accepted Accounting Principles

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