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March 4, 2019

FRC proposes stronger going concern standard for auditors

By Joe Pickard

The UK’s Financial Reporting Council (FRC) has proposed to increase the work required of auditors when assessing whether an entity is a going concern.

This consultation about potential revisions on reporting on 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 prospect of entities which collapsed shortly after.

If these revisions come into effect, 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.

The FRC’s acting executive director of audit and actuarial regulation Mike Suffield said: “Recent corporate failures and the FRC’s own enforcement work has shown the existing Going 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.”

The consultation period closes at 5pm on Friday 7 June 2019.

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