25 Insolvency and going concern risk
‘Prudence is a rich ugly old maid, and her beau is Insolvency.’
William Blake poet, painter, printmaker
In a nutshell
Companies that meet their debt obligations as they fall due are termed ‘solvent’. Insolvency is a legal term used where a company is unable to repay the debts that it owes.
Going concern is an accounting concept used when preparing financial statements. It assumes that a company will continue to operate with no intention or need to stop trading.
Going concern and insolvency are interrelated because an insolvent company is not a going concern.
In the UK, the term insolvency should not be confused with bankruptcy. Bankruptcy is a term that applies to individuals whereas insolvency relates ...