Going concern

Definition

A going concern, in accounting and business terms, refers to a company’s ability to continue its operations and meet its financial obligations in the foreseeable future.

What is a going concern?

When a company is considered a “going concern,” it is assumed that it will continue its business activities without the intention of liquidation or significant disruption.

Key points related to a going concern include:

1. Operational continuity: A going concern assumption assumes that the company will continue its normal operations, generate revenue, and meet its financial commitments, such as paying its debts, employees, and suppliers.

2. Financial statements: In financial reporting, the assumption of a going concern is fundamental. When preparing financial statements, companies typically assume that they will remain a going concern unless there is evidence to the contrary.

3. Assessment and disclosure: Company management and auditors are responsible for assessing the company’s ability to continue as a going concern. If there are doubts about the company’s ability to continue, these doubts must be disclosed in the financial statements along with the potential implications.

4. Disclosure impact: If there are significant doubts about a company’s ability to continue as a going concern, it can have an impact on financial statements and decision-making. For example, it might affect how assets and liabilities are valued and disclosed.

The going concern assumption is essential for accurate financial reporting. It helps users of financial statements, such as investors, creditors, and other stakeholders, understand the company’s financial health and make informed decisions. If there are substantial concerns about a company’s ability to continue as a going concern, it can signal potential financial distress and impact the company’s access to credit and capital markets.

In summary, a going concern refers to the expectation that a company will continue its operations and meet its financial obligations in the foreseeable future. This assumption is crucial for accurate financial reporting and assessing the company’s financial health.

Example of a going concern

XYZ Manufacturing Company is a well-established manufacturer of electronic components. In its recent financial statements, the management includes a statement affirming the company’s status as a going concern. This is based on several factors:

Positive operating results: XYZ has consistently generated profits over the past several years, indicating a healthy financial performance.
Positive cash flows:The company has positive cash flows from its operating activities, ensuring it can meet its day-to-day operational expenses.
Long-term contracts: XYZ has secured long-term contracts with key clients, providing a stable source of revenue for the foreseeable future.
No indications of financial distress: There are no signs of financial distress, such as defaults on loans or significant liquidity issues.
Sound management and strategy:The management team has demonstrated effective strategic planning and operational management, contributing to the company’s overall success.

By affirming the going concern assumption, XYZ Manufacturing Company assures stakeholders that it expects to continue its operations for the foreseeable future without the need to liquidate or scale down significantly.

5 Ways to Make Your SME More Financeable

Steps to get you business ready for funding

Relationship-led lending is making a comeback. How will this affect your business?

Should you borrow to grow your business? Swoop’s five-point checklist will help you decide

02 7908 3807

Business funding

About

Compare & save

Other

Our offices:

Disclaimer: Swoop Finance Pty Ltd (ABN 52 644 513 333) helps Australian firms access business finance, working directly with firms and their trusted advisors. We are a credit broker and do not provide finance products ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Swoop Finance Pty Ltd can introduce applicants to a number of providers based on the applicants’ circumstances and creditworthiness, we may receive a commission or finder’s fee for effecting such introductions. Swoop Finance Pty Ltd does not provide any kind of advice and in giving you information about providers products, we are not making any suggestion or recommendation to you about a particular product. Offers of finance are subject to a separate assessment process by the provider and subject to their terms and conditions. If you feel you have a complaint, please read our complaints section which is contained within our terms and conditions.

© Swoop 2025