What are Continuing Operations?
The going concern assumption means that when the audited entity prepares its financial statements, it assumes that its operating activities will continue in the foreseeable future. It does not plan or terminate its operations or bankruptcy and liquidation. It can realise assets and pay off debts in the normal course of business. [1]
Going concern assumption
- The connotation of the going concern assumption is: unless there is an obvious "disprove", it will be assumed that the operating activities of a subject are continuous. The so-called "counter-evidence" is the evidence that the business activities of the enterprise will be suspended, as stipulated in the contract
- Continuing operation refers to the premise that the operation of the accounting information system is based on the continued existence of the accounting entity and the execution of its predetermined operating activities. Unless there is sufficient evidence to the contrary, each accounting entity will be considered to be able to continue operating indefinitely.
- The going concern assumption is that under the conditions of a market economy, it is assumed that the accounting entity, as the accounting entity, specifies the spatial scope for accounting, while going concern provides the time requirements for accounting. Judging from the history of each enterprise, indeed, no enterprise can exist indefinitely. However, it is difficult to predict when the enterprise will shut down and turn around. Competition and other operating risks are inevitable phenomena in a market economy.
- Poor management or unexpected changes in the market often threaten enterprises, and in severe cases, they will terminate their operations and liquidate. In this case, how does the accountant provide information to serve its accounting subject? From the subjective desire of the enterprise, except for a few companies that have predetermined operating goals or operating periods, such as real estate development project companies, once the predetermined development project is realized In addition to the revocation, they are generally striving for long-term continuous operation and continuous development and expansion, especially modern production and management. Objectively, they also require continuity, which provides an objective basis for the assumption of continuous operation.
- Under the assumption of continuous operation, the accounting processing methods used by the enterprise in the collection and processing of accounting information can remain stable, and the enterprise's accounting records and reports can be true and reliable. Without the assumption of going concern, some accepted accounting treatments would lack the basis for their existence.
- For example, under the assumption of continuous operation, the fixed assets used by an enterprise should be accounted for according to the actual purchase and construction costs, and based on the economic useful life of the fixed assets, according to its value and use, using a depreciation method Depreciation. For its debts, such as bank borrowings and bonds payable, the enterprise can repay according to prescribed conditions. In the case of the termination of the liquidation of the enterprise, the value of the enterprise's assets must be calculated according to the actual realized value, and the debt of the enterprise can only be settled according to the actual solvency of the asset after realization.
- It is assumed that the enterprise can continue to exist and achieve the existing goals in the foreseeable future. The basis for preparing the statements is not to reflect the liquidation value of the enterprise or the events that will occur when the enterprise is liquidated. In contrast, the assumption of accounting work is that an accounting entity will continue to operate for an unlimited period of time in the future. In layman's terms, companies will not face bankruptcy liquidation in the foreseeable future. This assumption provides a time basis for the selection of accounting methods and accounting statements. Assets are valued according to the historical cost at the time of acquisition, depreciation of fixed assets and amortization of intangible assets. Based on a fixed use period or benefit period, the evaluation and analysis of the company's solvency are based on the assumption of continuing operations. Therefore, the going concern assumption is a prerequisite for the normal operation of accounting.