ABSTRACT:
The issues of going concern have received an increasing attention by academics, practitioners, standard setters and regulators. The Italian Economia Aziendale theory regards the going concern principle as an assumption characterizing the definition of the entity (i.e., the “azienda”), which is ordinarily viewed as continuing in business indefinitely. It is also widely acknowledged by Italian academics that the going concern principle also represents a main premise to pursue and maintain the economic equilibrium. Going concern is usually regarded as an underlying assumption to orient accounting measurement in the preparation of financial statements of companies whose activity is expected to continue, but it is relevant to address the principle also in other mandatory reports issued in different operational settings, as for example business combinations, initial public offering, project financing, and company’s crises. Consequently, the application of going concern should go beyond accounting measurements, also orienting the information on the effective capacity of the entity to stay in operation in the economic environment. While there has been extensive research on the use of going concern for measurement purposes, studies examining going concern information actually provided are scarce, and factors inhibiting exhaustive disclosure have not been investigated. Focusing on the Italian context, we assume that the theoretical conception of going concern principle differs from its practical application, with significant implication on the adequacy of information about the ability of the entity to run over time. This paper examines the use of the going concern principle within the different operational settings in which it becomes relevant. The aim is to compare the theoretical concept of going concern, as developed by the Economia Aziendale theory, with its practical application, as required by mandatory reports, in order to elucidate any divergences that may be observed. This research employs a qualitative research method. The comparison relies on three distinguishing items of the going concern principle as suggested by the Economia Aziendale theory, which represents the framework of our analysis: the purpose of the principle, which is to preserve the equilibrium of the entity, the time frame (horizon) of the principle, which is undefined or long term oriented, and the main subject concerned by principle, that is the entity itself. Drawing on this framework, information on going concern provided in mandatory reports is discussed on the basis of these three distinguishing items. This research is relevant from a theoretical perspective, as it provides some reflections pertaining the going concern principle. It also gives a contribution for practitioners and regulators as it sheds light on some opportunities to improve the information on going concern presented by firms.
KEYWORDS: going concern, disclosure, operational setting
