Going Concern AssumptionGoing Concern Assumption

Going Concern Assumption

1. Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future. A general purpose financial report is prepared on a going concern basis, unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. A special purpose financial report may or may not be prepared in accordance with a financial reporting framework for which the going concern basis is relevant (for example, the going concern basis is not relevant for some financial reports prepared on a tax basis in particular jurisdictions). When the use of the going concern assumption is appropriate, assets and liabilities are recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in the normal course of business. (Ref: Para. A1)

Responsibility for Assessment of the Entity’s Ability to Continue as a Going Concern

1. Some financial reporting frameworks contain an explicit requirement for management to make a specific assessment of the entity’s ability to continue as a going concern, and standards regarding matters to be considered and disclosures to be made in connection with going concern.[1] The detailed requirements regarding management’s responsibility to assess the entity’s ability to continue as a going concern and related financial report disclosures may also be set out in law or regulation.

Aus 3.1 Australian Accounting Standards[*] require management to make an assessment of an entity’s ability to continue as a going concern. In addition, certain legislation, such as the Corporations Act 2001,[#] requires a formal statement as to the solvency of the entity to be made by those charged with governance and included as part of the financial report upon which the auditor’s opinion is expressed.

1. In other financial reporting frameworks, there may be no explicit requirement for management to make a specific assessment of the entity’s ability to continue as a going concern. Nevertheless, since the going concern assumption is a fundamental principle in the preparation of a financial report as discussed in paragraph 2 of this Auditing Standard, the preparation of the financial report requires management to assess the entity’s ability to continue as a going concern even if the financial reporting framework does not include an explicit requirement to do so.
2. Management’s assessment of the entity’s ability to continue as a going concern involves making a judgement, at a particular point in time, about inherently uncertain future outcomes of events or conditions. The following factors are relevant to that judgement: