Fasb ongoing Project - Going Concern

Going Concern.

Going concern is the ability of a business to continue with its operations for the foreseeable future and without the risk of liquidation (Johnson, 2009). In accounting field, going concern is the company’s ability to function continuously as a business entity for a period of not less than twelve months. For this concept to be realized, the company must be able to generate or raise enough resources so as to stay operational. The main concept of going concern is based on the hope that a business is run in a manner which shows that it intends to keep operating; that it is not about to close down in the near future. As such, with the current global financial crisis, the principles of going concern has faced great challenge as many organizations face uncertain future and this has called for a sober approach both in accounting and auditing principles.

There are several other concepts which are associated with going concern. A current active base of both occasional and regular customer’s details is necessary to estimate the customer base. These may include mailing addresses and location. It is important to have knowledge of all employees who know the business and especially those ones who have already developed a strong business relationship with both customers and vendors. Under going concern, there is need to ensure that equipment, furniture, supplies and fixtures are at all times in good working condition to guarantee business continuity. In addition, the accumulated and verifiable profits over the years must be supported by income tax records, positive cash flow and ability to offset long-term debts. All these concepts are important because a business which is a going concern has more value to investors contrary to one that is failing or in the brink of closure.

Having seen the benefits of going concern to a business, it follows that the Financial Accounting Standards Board (FASB) ensures standards are followed in reporting. The mission of the Financial Accounting Standards Board is to establish and improve standards of financial accounting reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. Further, the FASB has a clause that guides how disclosures about risks and uncertainties and the liquidation basis of accounting ought to be carried out. This was formerly known as going concern and has undergone several updates over the years (Fitzsimons, Pappas and Ramanujam, 2009).Since it is the duty of FASB to develop generally accepted accounting principles (GAAP); it has taken considerable time in trying to streamline going concern. One way this has been achieved is by carrying out projects with an intention of standardizing how disclosures are made (FASB Issues Going Concern Proposals, 2008).

The following years saw many other additional interpretations as well as how to treat going concern and most notable