What does the phrase a going concern mean?
Key Takeaways. Going concern is an accounting term for a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future. Certain expenses and assets may be deferred in financial reports if a company is assumed to be a going concern.
A Going Concern is a business that functions on the expectation that an event of bankruptcy / liquidation does not have a significant likelihood in the near future. A Gone Concern is instead a business that is either already in such a liquidation state or is likely to enter in the near future.
The going concern assumption is that a business will remain active for the foreseeable future.
Going-concern value is the idea that a company will continue to be in business and be profitable. Goodwill is the difference between going-concern value and liquidation value. Going-concern value is often higher than the liquidation value.
adjectivevery productive, profitable. advantageous. beneficial. fat. fruitful.
What is the opposite of going concern? Since going concern refers to your company being financially stable enough to continue operating, the opposite would be bankruptcy or foreclosure. This means your company no longer has enough funds to pay outstanding debts and stay in business.
1 Assessing going concern. Financial reporting under US GAAP assumes that a reporting entity will continue to operate as a going concern until its liquidation becomes imminent. This is commonly referred to as the going concern basis of accounting.
Examples of Going Concern
A state-owned company is in a tough financial situation and is struggling to pay its debt. The government gives the company a bailout and guarantees all payments to its creditors. The state-owned company is a going concern despite its poor financial position.
Is a dormant company a going concern? A going concern is a business that operating and will remain in business for the foreseeable future. Dormant companies represent a bit of a grey area when it comes to going concern status because it is in existence but not trading.
If the company is not a going concern and the financial statements are prepared accordingly, management must disclose the fact, the reasons why and the basis on which the financial statements are prepared.
Who is responsible for going concern?
The auditor's responsibility is to obtain sufficient appropriate audit evidence about the appropriateness of management's use of the going concern assumption in the preparation of the financial statements and to conclude whether there is a material uncertainty about the entity's ability to continue as a going concern.
- Key industry financial metrics.
- Operating results.
- Future obligation and liquidity.
- Covenant compliance.
- Forecasted net cash flows from operations.
- Capital expenditure commitments.
You are selling a 'going concern' if: the sale includes everything that's necessary for the continued operation of the business. the business is carried on by you until the day of sale.
When uncertainties exist regarding the going concern assumption, the auditor will typically issue a “qualified” opinion and disclose the nature of these uncertainties in the footnotes.
This is confirmed by IAS 10 which states that 'an entity shall not prepare its financial statements on a going concern basis if management determines after the reporting period date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so' (IAS 10.14).
An entity is a going concern unless management either intends to liquidate the entity or cease trading or has no realistic alternative but to do so (IAS 1.25).
A business that operates with the expectation of indefinite existence. In bankruptcy law, going concerns are distinguished from businesses that are being liquidated or broken into smaller entities.
A term often used to refer to a business that is operating as an ongoing enterprise. A company's market value may be measured by its going concern value, which is its value as an ongoing entity as opposed to its liquidated value. This amount includes intangibles, such as goodwill and intellectual property.
For more than five consecutive financial years, a company cannot be classified as dormant.
There is no time limit for keeping a company dormant, so you do not need to worry that Companies House will 'strike-off' your company through inactivity. As long as you keep your Annual Returns and Annual Accounts up to date with Companies House each year, you can leave your company in an ongoing dormant state.
Is going concern an emphasis of matter?
If the auditor concludes that substantial doubt about the entity's ability to continue as a going concern exists, and management's plans do not alleviate the substantial doubt, the audit report should include an emphasis-of-matter paragraph.
When a company operates as a going concern, it means that it is expected to carry on trading with no threat of liquidation for 12 months or more. The company is not in danger of closure due to insolvency, but can be relied upon to survive or thrive.
Transferring a business as a going concern. To sell a business as a going concern is when a company owner sells a business to a buyer that can continue operating as usual in its current financial state, using existing resources available to the business, such as equipment and premises.
For a company facing going concern difficulties, the fundamental financial statement risk is whether the financial statements have been prepared on the correct basis of accounting, or whether any significant uncertainties have been disclosed in the financial statements.
- Key industry financial metrics.
- Operating results.
- Future obligation and liquidity.
- Covenant compliance.
- Forecasted net cash flows from operations.
- Capital expenditure commitments.
A going concern is a business that has regained stability following a period of financial uncertainty and can now confidently trade without the threat of liquidation for the foreseeable future, typically 12 months.
Given certain conditions being met, a property can be transferred as a 'going concern' which can be beneficial to the transacting parties.
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