Going Concern Assumption

what is the going concern assumption?

According to the Framework, fnancial reports are prepared normally on the assumption that the existing entity will continue to operate in the future — the going concern assumption. It is assumed that the entity will not be wound up in the near future but will continue its activities, and so the liquidation values (prices in a forced sale) of the entity’s assets are not generally reported.

When management plans the sale or liquidation of the entity, the going concern assumption is set aside and the fnancial statements are prepared on the basis of estimated sales or liquidation values.

The statements should then identify clearly the basis on which asset values are determined. In order for decision makers to understand information contained in fnancial reports, it is important that they know whether assets are valued at cost, at fair values, or on some other basis.