FRC consults on stronger Going Concern standard for auditors
04 March 2019
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:
Exposure Draft and Consultation Document
- 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.
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.”
Notes to editors:
- The FRC’s mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
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