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The going concern principle assumes that an entity will continue to exist into the future. This assumption implies that the entity will not be compelled to end their operations, liquidate their assets, or go into bankruptcy. It is an integral assumption in financial statements since it allows for the deferral of recognition of certain expenses until a period of time into the future, when the company is still assumed to exist. Members of management, as well as financial statement auditors, are required to identify signs that could indicate that an entity will not be able to continue their operations into the near future. Some of these signs include a trend of operating losses, loan defaults, legal proceedings against the entity and so forth. The Financial Accounting Standards Board (FASB) updated the going concern guidelines so that issuers of financial statements are uniform in frequency and substance of going concern determination. Prior to the Accounting Standards Update, U.S. GAAP lacked sufficient guidance about management’s responsibility to evaluate whether there is substantial doubt of the entity’s ability to continue as going concern. In order to clarify the uncertainty, FASB issued a new financial reporting standard. This new reporting will be in effect for the annual period ending after December 15, 2016. The updated standard will require management to perform annual and interim assessments of an entity’s ability to continue as a going concern for one year from the date of financial statements issuance.


This article was originally published in the International Journal of Business and Economic Development.

This work is licensed under a Creative Commons Attribution 3.0 unported (CC BY 3.0).



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