What is Going Concern Assumption?
The going concern assumption is the principle that an entity will continue to operate for the foreseeable future, without any intention or need to liquidate or significantly curtail operations. It underpins most accounting measurements and disclosures, and management must assess it at each reporting date.
How It Works
- Management assesses the entity’s ability to continue as a going concern for at least 12 months.
- If significant doubt exists, disclose the uncertainty.
- If the entity is no longer a going concern, prepare statements on a different (liquidation) basis.
- Auditors evaluate and report on the assessment.
Saudi Context
Saudi auditors include a separate going concern paragraph when material uncertainty exists, which often triggers Capital Market Authority disclosure requirements for listed companies.
Example
A company with recurring losses, negative working capital and an upcoming debt maturity it cannot refinance may need going concern disclosure or basis change.