# ASC 205-40-05: Presentation of Financial Statements — Going Concern — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

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## ASC 205-40-05: 05 Overview and Background

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##### [205-40-05-1](https://asc.understandingaccounting.org/asc/205/40/#205-40-05-1)

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Continuation of an entity as a going concern is presumed as the basis for financial reporting unless and until the entity's [liquidation](https://asc.understandingaccounting.org/glossary/l/#liquidation "The process by which an entity converts its assets to cash or other assets and settles its obligations with creditors in anticipation of the entity ceasing all activities. Upon cessation of the entity's activities, any remaining cash or other assets are distributed to the entity's investors or other claimants (albeit sometimes indirectly). Liquidation may be compulsory or voluntary. Dissolution of an entity as a result of that entity being acquired by another entity or merged into another entity in its entirety and with the expectation of continuing its business does not qualify as liquidation.") becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements are prepared under the liquidation basis of accounting in accordance with Subtopic 205-30 on the liquidation basis of accounting.

##### [205-40-05-2](https://asc.understandingaccounting.org/asc/205/40/#205-40-05-2)

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Even if an entity's liquidation is not imminent, there may be conditions and events, considered in the aggregate, that raise [substantial doubt about the entity's ability to continue as a going concern](https://asc.understandingaccounting.org/glossary/s/#substantial-doubt-about-an-entity-s-ability-to-continue-as-a-going-concern "Substantial doubt about an entity's ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). The term probable is used consistently with its use in Topic 450 on contingencies."). In those situations, financial statements continue to be prepared under the going concern basis of accounting, but the guidance in this Subtopic should be followed to determine whether to disclose information about the relevant conditions or events.

##### [205-40-05-3](https://asc.understandingaccounting.org/asc/205/40/#205-40-05-3)

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This Subtopic provides guidance for evaluating whether there is substantial doubt about an entity's ability to continue as a going concern and about related note disclosures.