
Contentious Tax Bulletin
Tax Investigations Partner, Andrew Park, provides a round up of the most recent and significant contentious tax news. Read more here...
Glossary
Going concern is the accounting term used to label a business that will continue operating for the foreseeable future and has neither the intention nor the need to liquidate or significantly curtail its operations.
The going concern assumption underpins the preparation of financial statements. It assumes that a business will continue trading and realise its assets and settle its liabilities in the normal course of business.
Under the UK Companies Act 2006, directors are required to assess whether it is appropriate to prepare accounts on a going concern basis. Accounting standards such as FRS 102 and UK IFRS, including IAS 1 Presentation of Financial Statements, require management to consider all available information about the future, typically covering at least twelve months from the date of approval of the financial statements.
In periods of economic uncertainty or market turbulence, the assessment becomes more complex. Factors such as reduced revenues, liquidity pressures, covenant compliance and access to funding must be considered, and, where material uncertainties exist, the financial statements require appropriate disclosures.
Key characteristics of going concern include the following:
The going concern assessment typically involves the following steps:
Auditors also evaluate management’s assessment as part of the statutory audit process.
A UK retail business experiences declining sales due to adverse market conditions. Directors prepare detailed cash flow forecasts covering the next twelve months, considering cost reductions and revised financing terms. Although pressures exist, available funding is sufficient to meet liabilities as they fall due. The accounts are prepared on a going concern basis with additional disclosure explaining the uncertainties.
Many believe going concern means a business is profitable; but in reality, it does not guarantee survival beyond the assessment period.
It’s commonly assumed that going concern and solvency are the same. However, solvency is when a business’ assets exceed liabilities and is therefore a measure of current financial health, not future viability.
Under UK accounting standards, management typically considers at least 12 months from the date the financial statements are approved.
If the going concern basis is not appropriate, financial statements are prepared on an alternative basis, often reflecting break-up or realisable values rather than ongoing use.
A material uncertainty exists where events or conditions may cast significant doubt on the entity’s ability to continue as a going concern and require clear disclosure in the financial statements.
Economic volatility can affect revenues, cash flow, borrowing arrangements and access to funding, increasing the likelihood that businesses face uncertainty about their ability to continue trading.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this glossary entry only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
Contact us today to find out more about how we can help you

Tax Investigations Partner, Andrew Park, provides a round up of the most recent and significant contentious tax news. Read more here...

Download our latest report to explore the key differences between MPs' and business leaders' priorities on tax and policy reform, with insights from over 700 UK businesses.

In this article we consider how both management and owners of law firms can strengthen governance around the Solicitors' Accounts Rules (SAR). We provide areas of consideration to allow for self-evaluation and reflection on how firms are operating in relation to these topics.

Learn about HMRC's VAT penalty regime, including late submission penalties, late payment penalties, interest charges and the impact for businesses.