Short notes: going concern; IFRS

Two notes are written, as the question allows: (i) the concept of going concern and (ii) IFRS. Topic (iii), data analytics in accounting, is not attempted: none of the prescribed texts we hold covers it, so there is no source to ground a note on it.

(i) The concept of going concern

Meaning. Accounting assumes that the business will go on operating for an indefinitely long period in the future. The accounting unit is taken to have a longer life than any asset it owns. AS 1 states it as a fundamental accounting assumption: the enterprise is normally viewed as continuing in operation for the foreseeable future, with neither the intention nor the necessity of liquidation or of materially curtailing the scale of its operations.

Why it matters.

1. Assets are shown at cost, not at their forced-sale value. Assets bought for use in the business are valued at cost; their current resale value is not relevant, because they are to be used in creating future output rather than sold.
2. Depreciation and prepayments make sense only on this basis. The cost of a fixed asset is spread over its useful life, and unexpired expenses are carried forward to the years that will benefit.
3. Assets and liabilities are split into current and non-current, because the business is expected to realise and settle them in the normal course.
4. It is assumed without being stated. Going concern is one of the three fundamental assumptions under AS 1, with consistency and accrual. No disclosure is needed when it is followed; if it is not followed, that fact must be disclosed.

Where it does not hold. If the business is failing and its assets face a forced sale, the conventional approach gives wrong or inadequate information. The statements are then drawn up on a realisable (liquidation) basis.

(ii) IFRS

Meaning. International Financial Reporting Standards (IFRS) are the accounting standards issued by the International Accounting Standards Board (IASB) of the IFRS Foundation. IFRS 16 on leases, for example, came out of a joint project of the IASB of the IFRS Foundation and the US standard-setter FASB. Like any accounting standards, they codify generally accepted accounting principles and lay down how items are to be dealt with in the books and shown in the financial statements.

IFRS in India: convergence, not adoption. India has not adopted IFRS word for word. It has Ind AS, standards converged with IFRS. Ind AS 116, Leases, for instance, is based on IFRS 16.

Need and benefits.

1. Comparability across countries. Standards bring uniformity of assumptions, rules and policies, so the statements of different enterprises can be compared; without them comparison may mislead. A single global set extends this across borders.
2. Access to foreign capital. Investors and lenders abroad can read statements prepared on a framework they already know.
3. One set of accounts for multinational groups, instead of reconciliations between several national GAAPs.
4. Less manipulation. A good standard significantly reduces the scope to manipulate reported data.