Going Concern: Fundamental Accounting Principles

Going Concern

During the 1970s SSAP 2 identified going concern. Going concern is one of the main fundamental accounting principles. Going concern is an assumption that businesses will remain active in the foreseeable future. As a result of this assumption accountants can defer recognised expenses at a later point. Going Concern is the process of distinguishing between capital and revenue expenditures. Capital expenditure provides benefits in the future by creating assets, while revenue provides benefits in the current period. Going concern also records assets at their cost and depreciates them over useful life.

It is assumed that all entities are a going concern unless if there is factor proven to make this statement false. For example if there is a scenario that an entity is selling their fixed assets to pay debts than theirs an alarming factor that the business will not operate in the future.. If an entity is no longer a going concern, an accountant can call for the write down of the entities carrying amount to their liquation value. Going concerns are extremely likely to earn profits as a result any entity that is a going concern automatically

Audited financial statements are also important for the company as owners of the company make a decision on whether or not they should reward its officers for the current year. However conflict arises between external users and management users over financial statements. According to Beaver and Demski, 1974 society favours auditors to resolve the issue in favour of external users. From a personnel opinion I believe that assurance statements should be dated to reduce conflicts between external users and management users. Assurance statements must be included in the audit report to answer questions such