The Going Concern Assumption: A Critical Appraisal.

Abstract The going concern or continuity assumption seems to be one of the most firmly entrenched and least controversial of the basic concepts of accounting. Most discussions of the going concern concept simply observe that the entity may be assumed to continue indefinitely and, therefore, will not be liquidated in the foreseeable future. If this is all the assumption implies, then it is a sterile postulate at best and is invalid with respect to thousands of new small businesses which are organized each year and are destined to fail within the year. There is no general agreement as to the exact implication of the going concern concept. It has been held to mean simply the absence of an imminent liquidation. It has been said to mean that the entity will survive long enough to permit completion of present problems and the orderly liquidation of assets now held. It has been extended to imply replacement of present assets with new ones to be used in completing present and future programs. Finally, it can quite logically be construed to mean continued operation at a profit. In summary, the going concern concept may be a valid description of the accounting entity, if it is justified by evidence in the particular case but not if it is offered as an untested general assumption.