What Is Geschäftsfortführung?
Geschäftsfortführung, often referred to as "going concern" in English, is a fundamental principle in Rechnungslegung that assumes a business will continue to operate indefinitely, or at least for the foreseeable future, without the intention or necessity of liquidation or ceasing operations. This assumption is crucial because it dictates how assets and liabilities are valued and presented in a company's financial statements. Without the expectation of continued operation, a company's assets would typically be valued at their liquidation value rather than their historical cost or fair market value, and liabilities might become immediately due. The concept of Geschäftsfortführung underpins the preparation of the Jahresabschluss, ensuring that financial reporting reflects an ongoing enterprise rather than one in distress. Companies are expected to evaluate their ability to continue as a going concern at each reporting date.
History and Origin
The principle of Geschäftsfortführung emerged as a cornerstone of modern Bilanzierung with the development of accrual accounting. Prior to this, financial reporting often focused on a liquidation basis, particularly for individual ventures. As businesses evolved into more permanent entities, the need for a framework that presumed continuity became apparent. This principle allows for the deferral of expenses and recognition of revenues over time, aligning with the long-term nature of business operations. Internationally, the concept is explicitly addressed in major Rechnungslegungsstandards. For instance, IAS 1, "Presentation of Financial Statements," issued by the IFRS Foundation, states that management must assess an entity's ability to continue as a going concern when preparing financial statements. An entity is required to prepare financial statements on a going concern basis unless management intends to liquidate the entity or cease trading, or has no realistic alternative but to do so.
Key4 Takeaways
- Geschäftsfortführung is a core accounting principle assuming a business will continue operating indefinitely.
- It impacts the valuation of assets and liabilities, allowing them to be recorded at historical cost or fair value rather than liquidation value.
- Management is responsible for assessing the company's ability to continue as a going concern, typically looking at least 12 months into the future.
- If substantial doubt exists, it must be disclosed in the financial statements, along with management's plans to mitigate the issues.
- Auditors independently evaluate management's assessment and report on the going concern assumption.
Interpreting the Geschäftsfortführung
Interpreting the Geschäftsfortführung principle primarily involves assessing a company's ability to meet its financial obligations as they fall due within a specific future period, typically at least 12 months from the financial statement date. A positive assessment means the company is deemed to have sufficient Liquidität and Solvenz to operate without significant financial distress. Conversely, if there are conditions or events that raise "substantial doubt" about a company's ability to continue as a going concern, this indicates significant financial challenges. Such conditions might include recurring operating losses, negative Kapitalfluss from operations, or violations of debt covenants. When substantial doubt is identified, companies are required to disclose these uncertainties and outline their plans to alleviate them. This provides crucial information to investors and creditors about the underlying financial health and Risikomanagement of the entity.
Hypothetical Example
Consider "Alpha Solutions GmbH," a software development firm. For its annual Abschlussprüfung, the external Wirtschaftsprüfer reviews Alpha's financial performance. In the past year, Alpha Solutions experienced a significant decline in Umsatz and posted a net loss, eroding a portion of its Eigenkapital. Additionally, a major loan from a bank is due for repayment in 10 months, and the company's current cash reserves are insufficient to cover it.
The auditors assess these factors, noting that despite past profitability, the recent losses and upcoming debt maturity raise substantial doubt about Alpha Solutions' ability to continue as a going concern for the next 12 months. Management, in response, presents a detailed plan: they intend to secure new equity financing from a venture capital firm, renegotiate the loan terms with the bank, and implement cost-cutting measures to improve future Gewinn. The auditors evaluate the feasibility and likelihood of these plans being successfully implemented. If they conclude that management's plans alleviate the substantial doubt, they will still include a disclosure in the audit report outlining the conditions that initially raised doubt and how management's plans resolved them. If the plans are deemed insufficient or unlikely to succeed, the audit report would explicitly state that a material uncertainty exists regarding the company's ability to continue as a going concern.
Practical Applications
The principle of Geschäftsfortführung has pervasive practical applications across financial markets and regulatory frameworks. It is foundational for financial reporting, ensuring that financial statements accurately portray a company's financial position and performance based on the assumption of ongoing operations. For auditors, evaluating a company's ability to continue as a going concern is a critical part of an Abschlussprüfung under various standards, including those set by the Public Company Accounting Oversight Board (PCAOB). The PCAOB's AS 2415, for instance, outlines the auditor's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period.
Regulators, like th3e Securities and Exchange Commission (SEC), require companies to disclose any material uncertainties related to their going concern status in their financial filings. This ensures transparency for investors. For example, a company might include a disclosure detailing its Fremdkapital structure and potential challenges in meeting obligations. Furthermore, the goi2ng concern assessment is crucial in Unternehmensbewertung, as a company facing going concern issues would typically be valued much lower than a stable, ongoing business, potentially at its liquidation value.
Limitations and Criticisms
Despite its foundational importance, the concept of Geschäftsfortführung faces several limitations and criticisms. One primary challenge is its forward-looking nature, requiring significant judgment and foresight. Predicting future economic conditions and a company's ability to respond to unforeseen events is inherently difficult. Critics argue that going concern warnings often come too late, after significant financial distress has already occurred, limiting their utility as an early warning system. For instance, former PCAOB chief auditor Marty Baumann has questioned whether accounting disclosures on going concern, particularly following recent bank failures, are always adequate or if the standards are correctly calibrated.
Another limitation st1ems from the "self-fulfilling prophecy" concern: disclosing substantial doubt about a company's ability to continue as a going concern can itself trigger a crisis, leading to a loss of customer confidence, withdrawal of credit, or a decline in stock price, thus accelerating the very outcome it warns about. Furthermore, the assessment period, typically 12 months, may be seen as too short to capture longer-term strategic risks or shifts in the economic landscape affecting a company's fundamental Unternehmensführung and viability. The judgment involved means that two different auditors or management teams might arrive at different conclusions based on the same set of facts, leading to potential inconsistencies in reporting.
Geschäftsfortführung vs. Insolvenz
Geschäftsfortführung stands in direct opposition to Insolvenz. While Geschäftsfortführung is the presumption that a business will continue its operations indefinitely, Insolvenz (insolvency) signifies that a company is unable to meet its financial obligations as they fall due or that its liabilities exceed its assets. The going concern principle dictates how financial statements are prepared under normal circumstances, assuming no imminent liquidation. If a company is determined not to be a going concern, it implies that liquidation is imminent or unavoidable, and financial statements may need to be prepared on a "liquidation basis," where assets are valued at their estimated realizable value and liabilities at their settlement amounts, often leading to significantly different financial figures. Therefore, the assessment of Geschäftsfortführung is a critical determinant of a company's financial reporting basis and often serves as an early indicator of potential insolvency risks, even if not a guarantee.
FAQs
What does "going concern" mean in simple terms?
In simple terms, "going concern" means that a business is expected to continue operating and fulfilling its obligations in the foreseeable future, usually at least the next 12 months, without facing the need to sell off its assets to pay debts or cease operations. It's the standard assumption for how most businesses are run and how their financial reports, like the Jahresabschluss, are prepared.
Who assesses a company's Geschäftsfortführung?
Both a company's management and its external auditors (often called Wirtschaftsprüfer in German) are responsible for assessing its ability to continue as a going concern. Management makes the initial assessment and disclosures, while auditors independently review this assessment as part of their Abschlussprüfung to ensure the financial statements are presented fairly.
What happens if a company is no longer considered a going concern?
If a company is no longer considered a going concern, it means there is significant doubt about its ability to continue operating. In such cases, the company might have to disclose this uncertainty in its financial statements and potentially prepare them on a liquidation basis, which values assets at what they could be sold for immediately rather than their ongoing operational value. This often signals severe financial distress or impending Insolvenz.