Critical Review of the Going Concern Assumption in Light of Sustainability Debate

Abstract

This paper critically reviews the traditional accounting concept of the "going concern assumption" within the evolving context of the global sustainability debate. The going concern assumption, which presumes a business will continue to operate indefinitely, forms a fundamental basis for financial reporting. However, increasing awareness of environmental, social, and governance (ESG) factors, climate change impacts, resource depletion, and social inequalities challenges this long-held premise. This review explores how sustainability risks and opportunities, often long-term and systemic in nature, can significantly impact an entity's ability to continue as a going concern, potentially leading to material misstatements or inadequate disclosures in financial statements. We examine the limitations of current accounting standards in fully incorporating sustainability-related factors into going concern assessments and discuss the implications for financial statement users, auditors, and regulators. The paper proposes that a more robust integration of sustainability considerations is necessary for going concern assessments to remain relevant and reliable in an era of increasing environmental and social consciousness, suggesting potential avenues for enhancing reporting frameworks and auditing practices.