<P> An entity is assumed to be a going concern in the absence of significant information to the contrary . An example of such contrary information is an entity's inability to meet its obligations as they come due without substantial asset sales or debt restructurings . If such were not the case, an entity would essentially be acquiring assets with the intention of closing its operations and reselling the assets to another party . </P> <P> If the accountant believes that an entity may no longer be a going concern, then this brings up the issue of whether its assets are impaired, which may call for the write - down of their carrying amount to their liquidation value, and / or the recognition of liabilities that arise on account of the entity's imminent closure (which may not arise otherwise). Thus, the value of an entity that is assumed to be a going concern is higher than its breakup value, since a going concern can potentially continue to earn profits . </P> <P> The going concern concept is not clearly defined anywhere in generally accepted accounting principles, and so is subject to a considerable amount of interpretation regarding when an entity should report it . However, generally accepted auditing standards (GAAS) do instruct an auditor regarding the consideration of an entity's ability to continue as a going concern . </P> <P> The auditor evaluates an entity's ability to continue as a going concern for a period not less than one year following the date of the financial statements being audited (a longer period may be considered if the auditor believes such extended period to be relevant). The auditor considers such items as negative trends in operating results, loan defaults, denial of trade credit from suppliers uneconomical long - term commitments, and legal proceedings in deciding if there is a substantial doubt about an entity's ability to continue as a going concern . If so, the auditor must draw attention to the uncertainty regarding the entity's ability to continue as a going concern, in their auditor's report . On the other hand, inappropriate use of the going concern assumption by an entity may cause the auditor to issue an adverse opinion on the financial statements . This Guidance provides a framework to assist directors, audit committees and finance teams in determining whether it is appropriate to adopt the going concern basis for preparing financial statements and in making balanced, proportionate and clear disclosures . Separate standards and guidance have been issued by the Auditing Practices Board to address the work of auditors in relation to going concern . </P>

The going concern assumption assumes that the business