The Financial Reporting Council (FRC) has issued a revised going concern standard in response to recent Enforcement cases and well-publicised corporate failures where the auditor’s report failed to highlight concerns about the prospects of entities which collapsed shortly after.
The revised standard (ISA UK 570 Going Concern) follows concerns about the quality and rigour of audit and increases the work auditors are required to do when assessing whether an entity is a going concern. It means UK auditors will follow significantly stronger requirements than those required by current international standards.
The FRC hopes that UK experience will lead to further strengthening of requirements at the international level.
The revised standard requires:
- greater work on the part of the auditor 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 of public interest entities, listed and large private companies to provide a clear, positive 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.
Earlier this year IAASA issued a consultation paper seeking the views of stakeholders regarding revisions to ISA (Ireland) 570 and we await the conclusion of this consultation for details of resulting changes to Irish auditing standards.