Going concern

The assumption that a business will keep operating for the foreseeable future, on which ordinary financial statements rest. Auditors must flag material uncertainty about it, and value as one usually exceeds liquidation value.

Where you will meet it

Going concern appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain what assuming a going concern means and set a going concern value against a liquidation value
  CFA Level II · Equities

  “That going concern value is usually higher than liquidation value, which is what the assets would raise if the business stopped trading and sold them, less its liabilities.”

• Set out where information about risk can be found
  CFA Level II · Financial Statement Analysis

  “The auditor's report states the opinion, flags material uncertainty about going concern and describes key audit matters under International Standards on Auditing (ISAs) or critical audit matters in the US, which are the matters of most significance in the audit, often the hardest judgements or the areas of higher assessed risk.”

See also

Liquidation value

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with G · Glossary