Going concern

A going concern is an accounting term for a business that is assumed will meet its financial obligations when they become due. It functions without the threat of liquidation for the foreseeable future, which is usually regarded as at least the next 12 months or the specified accounting period (the longer of the two). The presumption of going concern for the business implies the basic declaration of intention to keep operating its activities at least for the next year, which is a basic assumption for preparing financial statements that comprehend the conceptual framework of the IFRS. Hence, a declaration of going concern means that the business has neither the intention nor the need to liquidate or to materially curtail the scale of its operations. Continuation of an entity as a going concern is presumed as the basis for financial reporting unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements are prepared under the liquidation basis of accounting (Financial Accounting Standards Board, 2014). The going concern assumption is universally understood and accepted by accounting professionals; however, it has never been formally incorporated into U.S. GAAP. In October 2008, FASB issued an Exposure Draft called "Going Concern." It discusses the following possible pronouncements for the going concern: Reconsideration of defining and incorporating the terms going concern and substantial doubt into U.S. GAAP The time horizon over which management would evaluate the entity's ability to meet its obligations The type of information that management should consider in evaluating the entity's ability to meet its obligations The effect of subsequent events on management's evaluation of the entity's ability to meet its obligations Whether to provide guidance on the liquidation basis of accounting A current definition of the going concern assumption can be found in the AICPA Statement on Auditing Standards No.