Going Concern Concept I Definition & Explanation I Accounting Universe

The going concern concept is a fundamental principle in accounting, particularly addressed in IAS 1 (International Accounting Standard 1) – Presentation of Financial Statements. According to IAS 1, the going concern concept is the assumption that an entity will continue its operations for the foreseeable future and has no intention or need to liquidate or curtail materially the scale of its operations.

Key points regarding the going concern concept according to IAS 1 include:

1. **Assessment of Going Concern**: Management is required to assess the entity’s ability to continue as a going concern when preparing financial statements. This assessment should cover a period of at least twelve months from the end of the reporting period.

2. **Disclosure Requirements**:

   - If there are significant doubts about the entity’s ability to continue as a going concern, these doubts must be disclosed in the financial statements.

   - If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis. The basis of preparation used must be disclosed, along with the reasons why the entity is not considered a going concern.

3. **Considerations for the Assessment**: Factors that management should consider in their assessment include:

   - Current and expected profitability.

   - Debt repayment schedules and sources of financing.

   - Cash flow projections.

   - Existing and potential sources of funding.

   - Any other relevant information that could impact the entity’s ability to continue operations.

4. **Revisions and Updates**: If new information arises that impacts the entity’s ability to continue as a going concern, the assessment must be revised and the financial statements updated accordingly.

In summary, the going concern concept under IAS 1 ensures that financial statements are prepared on the assumption that the entity will continue to operate for the foreseeable future unless there is evidence to the contrary. This principle is critical for providing a realistic and fair view of the entity's financial position and performance. 

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