An accounting assumption that holds that an entity would continue in business indefinitely or for the foreseeable future (a minimum period of 12 months from the end of financial year). Under ordinary circumstances, an entity is expected to prepare its financial statements on a going-concern basis. However, this assumption ceases to exist in unusual situations such as when an entity is being liquidated or has ceased trading or when it reaches a conclusion that liquidation or ceasing to trade is the only option at hand.

The going-concern assumption is applied as a basis for using historical cost (HC) to value various items in an entity’s accounts rather than liquidation value. In other words, the operational implication for this assumption is that an entity’s assets will not be shown on the statement of financial position at liquidation value (the value at which these assets can be sold in the market), but will rather have their value determined based on their use or likely contribution to the process of production or service providing now and in the future.

This concept or assumption is also known as continuity assumption.