In response to recent corporate failures and enforcement cases, the UK Financial Reporting Council (FRC) has strengthened its auditing standard for going concern.
The FRC on Monday issued International Standard on Auditing (UK) 570, Going Concern. The revised standard increases the work auditors are required to do when assessing whether an entity is a going concern.
The standard requires:
- Greater work by 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 companies, and large public companies to provide a clear, positive conclusion on whether management’s assessment of going concern is appropriate, and to set out the work they have done on this issue.
- A stand-back requirement to consider all the evidence obtained, whether corroborative or contradictory, when the auditor draws conclusions on going concern.
“Our own enforcement work has demonstrated a need to strengthen existing going concern standards, which is a fundamental aspect of audit, so that investors can have confidence in audited financial statements and businesses’ financial prospects,” Stephen Haddrill, FRC chief executive, said in a news release.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is FM magazine’s editorial director.