Going concern

Insurance will consider whether or a not a company is a "going concern". A concern is a term used for an enterprise or a business. This phrase refers to a company's ability to continue functioning as a business entity.

In accounting terms "going concern" relates to whether or not the company will be able to continue operation in the foreseeable future.

When a business is seeking surety coverage then the insurance company will look at the company's overall picture in regards to negative trends. Some of the areas that they are looking for will be operating results, loan defaults and difficulties with obtaining credit.

It is the responsibility of the directors to assess whether the going concern assumption is appropriate when preparing the financial statements. A company is required to disclose in the notes to the financial statements whether there are any factors that may put the company's status as a going concern in doubt.

Risk Management will focus on the ability of a company to continue as a going concern. If there is a concern of insolvency then this will affect debt financing, stock values and the ongoing profitability of a company. The going concern principle in accounting is defined as: The life of the business is considered continuous and reports are kept on this basis.

accounting.jpg