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Going Concern

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Definition:

A going concern is an accounting assumption that states that a business will stay in operation for the foreseeable future. When the financial statements are prepared for the annual report, it is the job of the Board of Directors to decide if the company is still a going concern. The Board must put this information into the footnotes to the financial statements and state any factors that may threaten that status.

Further, the fact that the business is a going concern means that it can pay its liabilities and realize its assets. The company's auditor is responsible to the Board of Directors and must determine whether or not the company is still a going concern. The auditor is required to disclose any negative trends in the company's business operations. Negative trends would be lower operating income, loan denials, loan defaults, repossession of assets, and more. The auditor then must issue a "going concern opinion."

If an auditor issues a going concern opinion in the annual report, investors may have second thoughts about holding the stock of the company. A business valuation may be done on the business to determine what it is really worth. A going concern asset-based approach is one method of business valuation in use.

Also Known As: going concern assumption, going concern principle
Examples:
XYZ, Inc. was determined to be a going concern by the auditor for their 2010 annual report.

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