Discuss why it is necessary for accountants to assume that an economic entity will remain a going concern.

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Ashley Kannan eNotes educator| Certified Educator

I think that one reason accountants should assume that an economic entity is an ongoing concern is to ensure efficient financial planning in the event they are right.  If we examine "economic entity" as a way of discussing current economic conditions, then the process of giving financial advice and presenting information from which to generate financial planning should be done in light of current contexts.  For example, if an account makes the assumption that the current economic crisis is ongoing, their financial planning will probably involve less risk, more stable income generating elements, and not endanger the financial well- being of the client.  Naturally, such projections about economic entities are fluid.  If something does happen and there is a change, projections and suggestions can be manufactured towards that end. However, there is a fundamental problem with any financial planning scheme offered by an accountant if plans are made and decisions are undertaken in a vacuum, outside the current economic entity.  At that point, it becomes difficult to dial down what has been committed both in finances and in endeavor.  It is here, in order to avoid such a condition, whereby the economic entities of a particular context or situation must be taken into account in order for an accountant to be particularly effective.

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