Which assumption underlies the going concern basis in financial reporting?

The assumption that underlies the going concern basis in financial reporting is that the business will continue operating into the foreseeable future. This principle is fundamental to the preparation of financial statements and indicates that the entity is expected to remain in operation for at least the next twelve months unless there is evidence to the contrary.

When financial statements are prepared under the going concern assumption, it allows management to present the company’s assets and liabilities based on their expected future value and usage rather than their liquidation value. This perspective ensures that financial statements reflect a true and fair view of the business's financial position and performance, providing relevant information for users such as investors, creditors, and other stakeholders who rely on the continuity of the entity for ongoing transactions.

Other assumptions, such as the business ceasing operations soon or restructuring debts, do not fit within the going concern premise and would instead suggest a need for different accounting and reporting treatments. Additionally, profitability by itself is not a defining factor for the going concern assumption; a business can continue its operations despite periods of loss, as long as there is an expectation of recovery and continuity in the future.