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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Which statement about the going concern assumption is correct?

Under the going concern assumption, financial statements are prepared on the basis that the entity will continue operating for the foreseeable future. It does not mean the entity must be profitable, and it avoids using break-up values for assets.

  1. AAssets are valued at their expected break-up values at the reporting date
  2. BFinancial statements are prepared assuming the entity will continue operating for the foreseeable futureCorrect
  3. CIt requires the entity to be profitable in every period
  4. DIt permits omission of liabilities falling due after twelve months
  5. It means non-current assets are carried at fair value only

Explanation

Going concern assumes the business will continue in operation for the foreseeable future, so assets are not stated at break-up values and the accounts use normal cost-based measurement. It does not require profitability, and long-term liabilities must still be disclosed.

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