In addition, management must include commentary regarding its plans on how to alleviate the risks, which are attached in the footnotes section of a company’s 10-Q or 10-K. More specifically, companies are obligated to disclose the risks and potential events that could impede their ability to operate and cause them to undergo liquidation (i.e. – to understand the true financial health of the company. Under GAAP standards, companies are required to disclose material information that enables their viewers – in particular, its shareholders, lenders, etc. there are potential catalysts that could raise significant concerns – the company’s financials should still be prepared on a going concern basis. The formal definition of the term “going concern” per GAAP / FASB can be found below.įASB Going Concern Disclosure Requirements (Source: FASB 205)Įven if the company’s future is questionable and its status as a going concern appears to be in question – e.g. Going Concern Definition in Accounting (FASB / GAAP) Fulfilling All Non-Financial Side Requirements.Continuing to Generate Revenue from Core Day-to-Day Operations.Interest Expense, Principal Amortization on Debt Meeting Required Financial Obligations – e.g.If a company is a “going concern,” then it’ll be capable of: Under the going concern principle, the company is assumed to sustain operations, so the value of its assets (and capacity for value-creation) is expected to endure into the future. the company will remain operating into the foreseeable future, which is formally defined as the next twelve months at a bare minimum. In accrual accounting, the financial statements are prepared under the going concern assumption, i.e. Going Concern Assumption: Fundamental Accrual Accounting Principle The Going Concern Assumption is a fundamental principle in accrual accounting stating that a company will remain operating into the foreseeable future, rather than undergo a liquidation.
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