Going concern
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A going concern describes a business that functions without the intention or threat of liquidation for the foreseeable future.
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[edit] Use in Accounting
In accounting, "going concern" refers to a company's ability to continue functioning as a business entity. Accountants and auditors may be required to evaluate and disclose in the notes to the financial statements whether a company is no longer a going concern, or is at risk of ceasing to be one.
Financial statements are prepared on the assumption that the entity is a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations. Different bases of measurement may be appropriate when the entity is not expected to continue in operation for the foreseeable future.<ref>CICA Handbook Section 1000.58</ref>
[edit] Use in Risk Management
If a public company reports that its auditors have doubts about its ability to continue as a going concern, investors are likely to take that as a sign of increased risk. Some fund managers may be required to sell the stock to maintain an appropriate level of risk in their portfolios. A negative judgment may also result in the breach of bank loan covenants.
[edit] References
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