Going Concern

Topics: Balance sheet, Financial statements, Going concern Pages: 3 (1010 words) Published: September 23, 2011
Going Concern in a Credit Crisis – Call for Your Views Steve Priddy Director of Technical Policy and Research October 2008 You can comment on this piece at http://discuss.accaglobal.com/view_topic.php?id=49&forum_id=62

One of the fundamental accounting concepts is that financial statements are prepared on a going concern basis – that is that there is an underlying assumption that the entity will continue in operational existence for the foreseeable future and that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations. The generally recognised alternative to the going concern basis is to assume that the business will be broken up. This may significantly diminish the carrying amount of assets previously reported in the balance sheet since it assumes that the assets will be subject to a forced sale and not realised in the normal course of business. The extraordinary economic events of the last year have led to some spectacular business failures both within and outside the financial services sector. Deteriorating economic conditions and the drying up of liquidity have raised the importance of the going concern assumption up the corporate agenda, and, as a result, the Financial Reporting Council have revisited and proposed amendments to the guidance issued to Directors of Listed Companies first published 14 years ago. While the guidance is addressed to Directors of only listed companies, the FRC strongly encourages extension of its application to all directors in discharging their obligations under the Companies Act 2006. The purpose of this note is to ask whether economic circumstances have changed so radically that the application of the going concern concept is no longer applicable or is in some way severely compromised. It is hoped that the note will stimulate discussion and debate among ACCA members and thereby inform the response of ACCA to the FRC consultation. Without doubt, economic transactions,...
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