The Financial Reporting Council (FRC) proposes to increase the work required of auditors when assessing whether an entity is a going concern. The consultation on important revisions to International Standard on Auditing (ISA) (UK) 570 Going Concern follows concerns about the quality and rigour of audit and well-publicised corporate failures where the auditor’s report failed to highlight concerns about the prospects of entities which collapsed shortly after as well as findings from recent FRC Enforcement cases. In proposing these revisions, requirements on UK auditors will be significantly stronger than those required by international standards.
The FRC proposes:
- auditors make greater effort to more robustly challenge management’s assessment of going concern, thoroughly test the adequacy of the supporting evidence, evaluate the risk of management bias, and make greater use of the viability statement;
- improved transparency with a new reporting requirement for the auditor to provide a conclusion on whether management’s assessment is appropriate, and to set out the work they have done in this respect; and
- a stand back requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern.
Exposure Draft and Consultation Document
The consultation period closes at 5pm on Friday 14 June 2019.
Mike Suffield, the FRC’s Acting Executive Director of Audit and Actuarial Regulation said:
“Recent corporate failures and the FRC’s own enforcement work has shown the existing Going Concern Standard needs to be strengthened. If the UK is to attract high-quality global investment, investors have to have confidence in audited financial statements and the prospects of businesses. Our proposals will significantly expand the work required of auditors – however, we believe this to be an important investment in the quality of the work that underpins what is a cornerstone of audit. This revised standard has been designed to better meet the needs of users and protects the public interest.”