Going concern

A firm is seen as a ‘going concern’ if its auditors believe it will stay in business for the ‘foreseeable future’ (as a rule of thumb, this is at least 12 months after its balance-sheet date). This is important because if you remove that assumption, certain standard balance-sheet classifications make no sense.

For example, you can’t have assets listed as ‘fixed’ (longterm) or liabilities classified as ‘falling due after more than one year’ if the firm is about to go bust. Where going concern is in doubt, accounts may be prepared on a ‘break-up’ basis.This means assets and liabilities in the balance sheet are reclassified as short term and written down to their ‘fire sale’ values on the assumption that the business will soon cease.

MoneyWeek magazine

Latest issue:

Magazine cover
Walking out on the banks

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 3 FREE Issues
Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.

More from MoneyWeek

The problem with the Bank of England

Fracking: Nine reasons not to get carried away

Five small-cap stocks worth a flutter

This Dutch company could help us tame floods

ScreenHunter_01 Mar. 25 09.51

Get the latest tips and investment opportunities from MoneyWeek magazine: Claim 3 FREE issues HERE