What Is a Going Concern?

Continuing operations refer to the premise of continuous, normal production and operation activities for accounting confirmation, measurement and reporting by an enterprise. In general, it should be assumed that the company will continue to operate at its current size and state, without considering factors such as closure, bankruptcy, liquidation, or large-scale business reductions. If this basic premise is clear, accountants can choose accounting principles on this basis And methods, such as assets can be calculated on a measurement basis, costs can be allocated regularly, liabilities can be repaid on time, otherwise normal accounting cannot be performed. ^[1]

Continue to operate

The so-called continuous operation means that the operating activities of an accounting entity will continue indefinitely. In the foreseeable future, the accounting entity will not encounter changes such as liquidation and dissolution and will no longer exist.

The premise of continuing operations requires that when conducting financial accounting, the enterprise must continue to conduct normal business operations. The assets owned by the enterprise should be consumed, sold, transferred, depreciated, etc. according to predetermined goals. Such debts must also be repaid as scheduled.

Clarifying this basic premise means

On the one hand, the incorporation of the going concern assumption into the accounting instalment assumption will not have an impact on previous accounting treatments. Based on the going concern assumption, the accounting entity uses historical cost instead of liquidation cost to confirm the measurement of each asset element. All assets will also be consumed and sold in the normal production and operation process according to the predetermined target, and its debts will also be on schedule. For repayment, the financial statements provided by the enterprise are considered as part of a series of continuous reports. In fact, based on the assumption of the accounting period, the above-mentioned accounting treatment method is not bad, and it is a realistic choice. The accounting period includes not only the meaning of "this period" but also the meaning of "next period and subsequent periods". What is most convincing is that the aforesaid assets were amortized on the basis of the going concern assumption, but actually based on the accounting period. If the fixed asset depreciation period is 15 years, it is not based on the company's continuous operation for only 15 years, but on the basis of 15 accounting periods.

On the other hand, from a historical perspective, accounting instalments are earlier than the going concern assumption. The emergence of continuing operations has only led to the shortening and regularization of accounting instalments. For example, the emergence of virtual enterprises makes continuing operations non-existent. The return to the use of accounting instalments is still feasible; and in the era of information technology, enterprises are facing increasingly fierce competition, with increasing risks, which may be liquidated and terminated at any time, so it is also necessary and wise to pay attention to each accounting period. Therefore, if the majority of the accounting periods develop according to the established goals, it can be considered that going concern is reasonable; if the performance of most accounting periods is not good, it is difficult for the company to establish a going concern. Rather than deriving the accounting period from uncertain continuing operations, it is better to deduct continuing operations from determinable accounting periods.