Going Concern
Candlefocus EditorThis concept is particularly important for companies that are publicly held such as those who are listed on stock exchanges. Companies that are not going concerns must make certain disclosures on their financial statements that reflect the lack of going concern status.
When an auditor is evaluating a company, they will look for negative trends or other warning signs that indicate potential problems or instability. These signs may include a denial of credit, continued losses, aging accounts receivables, and/or pending or current lawsuits against the company. If an auditor finds any of these issues, they will likely issue a going concern opinion, which indicates that there are doubts about the company's ability to remain a going concern into the foreseeable future.
In order to maintain going concern status, companies should be actively monitoring their financial condition, addressing any issues that arise, and regularly assessing their credit and cash flow to ensure that they remain financially stable. Companies should also be engaging in sound business practices, staying informed about changes in the industry, and ensuring that their financial statements accurately reflect the organization's current condition.
Overall, going concern is an important concept in accounting that all companies should understand and be prepared to address, should the need arise. Failure to maintain going concern status can result in costly financial reporting issues as well as lower credit ratings, which can have serious negative impacts on a company’s operations. For these reasons, it is essential that companies stay vigilant in order to remain a going concern.