Characteristics of Going Concern Principle

Characteristics of Going Concern Principle

In this article we would explain some important characteristics of going concern principle. Going concern assumption believes that business shall continue to exist for foreseeable future and financial statement are prepared on the bases of this assumption.

 Important characteristics of going concern

Some important characteristics of going concern have been explained in terms of continuity of business; management shall make the assessment etc. These characteristics have been briefly explained below;

1.   Continuity of Business for foreseeable future

In this principle, it is believed that business will continue to exit, and Management neither has intention nor the circumstance suggests that business shall cease to exit. The term foreseeable future is at least 12 month from the balance sheet date.

2.   Management Shall make the assessment

Management shall make the assessment about the organization ability to continue as going concern. Management shall make this assessment for 12 months from balance sheet date.

3.   Going Conner & Financial statement.

If organizations are not considered to be going concern, then financial statements are prepared on special bases i.e. break. For example assets may be stated at recoverable amount , similarly all assets and liabilities are treated as current assets and liabilities. 

if going concern assumption is not valid then this fact shall be disclosed in financial statements. Some frame work also require that going concern validity should also be disclosed.

4.   Circumstance of Going Concern.

Following are few circumstances which may suggest that organization have going concern issue.

a.    Continue heavy losses incurred by the organization.

b.    Leaving of key management Personnel.

c.    Liquidate major assets or operations.

d.    Downsizing of employees

e.    Default in paying the loan.

f.     Default in paying the creditors.

 5.   List of important characteristics of going Concern.

Some important characteristic of going concern are listed below

1.    Business shall continue to exist in future.

2.    Management shall make the assessment of going concern.
3. Assessment shall be made for 12 month from balance sheet date.

4. If assumption not valid, then financial statement preparation under special circumstances.

We have briefly explained the characteristics of going concern principle in this article.