The going concern concept is a fundamental accounting principle that assumes a business will continue operating in the foreseeable future. It means the company is expected to remain in business long enough to realize its assets and fulfill its obligations without the need to liquidate.
The going concern concept, also called the going concern assumption, states that financial statements are prepared on the basis that the company will keep functioning normally for the near future—typically at least the next 12 months. It assumes that the company will not be forced to shut down, sell off significant assets, or drastically scale back operations.
This concept underpins the way financial statements are prepared and interpreted. Without it, accountants would need to value assets at liquidation prices, and long-term liabilities might require immediate recognition. The going concern assumption keeps financial reporting consistent and meaningful for planning, analysis, and investment decisions.
The going concern concept ensures that financial statements reflect a company’s ability to continue operating into the foreseeable future. By assuming stability and continuity, accountants can value assets and liabilities properly, investors can trust financial reports, and management can plan with confidence. Recognizing and monitoring red flags, like recurring losses or inability to raise capital—is crucial for protecting the company’s future and maintaining stakeholder trust.
It is the assumption that a business will continue operating normally and meet its obligations for at least the next 12 months.
It ensures financial statements present an accurate and reliable view of a company’s ongoing operations, guiding investors, creditors, and management.
Persistent losses, negative cash flow, inability to raise capital, major legal issues, or loss of key customers and suppliers.
It may face restructuring, asset sales, or liquidation, and its financial statements must reflect liquidation values instead of ongoing operations.
Auditors review financial statements, analyze forecasts, evaluate liquidity, and may issue a going concern opinion if serious doubts exist.