going concern assumption
Financial Dictionary — Auditing & Assurance
Definition
Continuity Assumption: An accounting guideline that allows readers of financial statements to assume that a company will continue long enough to carry out its objectives and obligations. In other words, accountants believe that the company will not be liquidated in the near future. This assumption also provides some justification for accountants to follow the cost principle
Use cases, Example & Why it matters
Use cases
- Used in audit planning to understand risks and design procedures.
- Used during testing (controls/substantive) and documentation of audit evidence and conclusions.
- Used during testing (controls/substantive) and documentation of audit evidence and conclusions.
Example
- Example: The auditor references **going concern assumption** when designing procedures and documenting conclusions in the audit file.
Why it matters
- Why it matters: Supports high-quality, defensible audit conclusions and helps detect material misstatements and control weaknesses.