Accountancy Readiness Test 1 Practice

Going concern means financial statements are prepared on the assumption that the entity will continue to operate for the foreseeable future. Under this assumption, assets and liabilities are reported with the expectation of ongoing business, not liquidation. If management concludes that this assumption is not valid, they must disclose the doubt about going concern and switch to an alternative reporting basis, typically a liquidation or break-up basis, and adjust disclosures accordingly. This is why the best description is that it presumes continuation; if that assumption is not valid, disclosure and a different reporting basis are required. It does not imply that the entity will cease operations by default, it does not determine tax year timing, and liquidation is not required in every case.