The silly ways accountants explain going concern
Here are some more ludicrous expressions used by accountants to explain going concern
Concept or assumption
Many accountants call going concern a concept and then contradict themselves that it is an assumption and not a concept at all. Take the ACCA (The Association of Chartered Certified Accountants) in their global site. They state:
“The concept of going concern is an underlying assumption in the preparation of financial statements…” [1]
Perhaps it’s both. But most probably a concept here can be an assumption, but an assumption cannot be a concept.
There are apparently going concern principles to be applied within the concept.
A principle or a standard
Going concern is not a standard, but sometimes accountants get into a twist and unintentionally declare that it is one. One such example comes in the heading of an article explaining guidance statements issued by the FASB:
“What FASB’s Going Concern Standard Really Means For Your Company.” [2]
And then in the very first sentence, the article states that going concern is an assumption. I consider that these inadvertent errors are not part of accountants’ objective to make things complicated for non-accountants, but it does add to the overall confusion surrounding going concern.
Although going concern is not a standard, there is a paragraph in IAS1, the very first IFRS standard where they state that management must assess whether their company can ‘continue as a going concern’ and prepare the financial statements accordingly.
The accounting institutes and the accounting boards which set standards do not admit that going concern is a principle. They do call it a concept but not a principle. It is the accounting organisations which explain what going concern is to non-accountants and beginner-accountants that elevate the term to be a principle.
Wikipedia is probably the best example. They throw in this sentence under the heading Accounting in their explication of going concern:
“The going concern principle allows the company to defer some of its prepaid expenses until future accounting periods.” [3]
And they are not alone. Some business schools use going concern as a principle, several accounting blogs written by qualified accountants, accounting software companies, accountancy training organisations and many others. By calling going concern a principle at the start of learning what it is adds to the general confusion around its definition and accountants do nothing to correct the error to keep the confusion alive.
[2] Source https://anderscpa.com/what-fasbs-going-concern-standard-really-means-for-your-company/
[3] Source https://en.wikipedia.org/wiki/Going_concern , Version May 2022