what is going concern 
going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary this term also refers to a company s ability to make enough money to stay afloat or to avoid bankruptcy if a business is not a going concern it means it s gone bankrupt and its assets were liquidated as an example many dot coms are no longer going concern companies after the tech bust in the late 1990s investopedia eliana rodgersunderstanding going concernaccountants use going concern principles to decide what types of reporting should appear on financial statements companies that are a going concern may defer reporting long term assets at current value or liquidating value but rather at cost a company remains a going concern when the sale of assets does not impair its ability to continue operation such as the closure of a small branch office that reassigns the employees to other departments within the company accountants who view a company as a going concern generally believe a firm uses its assets wisely and does not have to liquidate anything accountants may also employ going concern principles to determine how a company should proceed with any sales of assets reduction of expenses or shifts to other products going concern is not officially included in the generally accepted accounting principles gaap but some instruction is included in the generally accepted auditing standards gaas 1going concern is an example of conservatism where entities must take a less aggressive approach to financial reporting red flags indicating a business is not a going concerncertain red flags may appear on financial statements of publicly traded companies that may indicate a business will not be a going concern in the future listing of long term assets normally does not appear in a company s quarterly statements or as a line item on balance sheets listing the value of long term assets may indicate a company plans to sell these assets a firm s inability to meet its obligations without substantial restructuring or selling of assets may also indicate it is not a going concern if a company acquires assets during a time of restructuring it may plan to resell them later sometimes one time events are enough to cause a company to go bankrupt consider how a single substantial lawsuit default on a loan or defective product can jeopardize the future of a company a company may not be a going concern based on the financial position on either its income statement or balance sheet for example a company s annual expenses may so vastly outweigh its revenue that it can t reasonably make a profit on the other hand a company may be operating at a profit buts its long term liabilities are coming due and not enough money is being made there are also a number of quantifiable measurable indicators that auditors use to measure going concern companies with low liquidity ratios high employee turnover or decreasing market share are more likely to not be a going concern companies can go bankrupt without ever having been a going concern issue going concern conditionsaccounting standards try to determine what a company should disclose on its financial statements if there are doubts about its ability to continue as a going concern in may 2014 the financial accounting standards board determined financial statements should reveal the conditions that support an entity s substantial doubt that it can continue as a going concern statements should also show management s interpretation of the conditions and management s future plans 2in general an auditor examines a company s financial statements to see if it can continue as a going concern for one year following the time of an audit conditions that lead to substantial doubt about a going concern include negative trends in operating results continuous losses from one period to the next loan defaults lawsuits against a company and denial of credit by suppliers 3in order for a company to be a going concern it usually needs to be able to operate with a significant debt restructuring or massive financing overhaul therefore it may be noted that companies that are not a going concern may need external financing restructuring asset liquidation or be acquired by a more profitable entity implications of going concernif a company receives a negative audit and may not be a going concern there are several implications first the company will now be seen as a declining investment opportunity companies that are not a going concern represent a significantly higher level of risk compared to other companies if a company is not a going concern the company may be revalued at the request of investors shareholders or the board this revaluation may be used to price the company for acquisition or to seek out a private investor there are often certain accounting measures that must be taken to write down the value of the company on the business s financial reports one of larger repercussions of not being a going concern are potential credit challenges if a company is not able to meet debt covenants its debt may be callable new lenders will likely be reluctant to issue new credit or any new credit issued will be prohibitively expensive this credit crunch may trickle down to suppliers who may be unwilling to sell raw materials or inventory goods on credit 